Berkeley City Council
June 25, 2024

__________________________________

OFFICIAL STATEMENT
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$36,000,000*

CITY OF BERKELEY
2024-25 TAX AND REVENUE ANTICIPATION NOTES

INTRODUCTORY STATEMENT

This Official Statement, which includes the cover page, the appendices hereto and this introductory statement, is provided to furnish information in connection with the sale by the City of Berkeley, California (the “ City”), of its 2024- 25 Tax and Revenue Anticipation Notes (the “Notes”).

The Notes are issued in full conformity with the Constitution and laws of the State of California (the “State”), including Article 7.6, Chapter 4, Part 1, Division 2, Title 5 (commencing with Section 53850 of the Government Code of the State), (the “ Law”) and under the Law are general obligations of the City payable solely from those taxes, income, revenues, cash receipts and other moneys that are received by the City for its General Fund (the “General Fund”) for fiscal year 2024-25 and that are generally available for the payment of current expenses and other obligations of the City (the “ Unrestricted Moneys”). The Notes are authorized by a resolution adopted by the City Council on June 25, 2024 (the “Resolution”). The City may, under the Law, issue the Notes only if the principal of and interest on the Notes will not exceed 85% of the estimated amount of the uncollected Unrestricted Moneys that will be available for the payment of said Notes. Proceeds from the sale of the Notes will be deposited into a segregated account in the General Fund and used and expended by the City for any purpose for which it is authorized to expend funds from the General Fund.

THE NOTES

Description of the Notes

The Notes will be issued in the principal amount and at the interest rate shown on the cover page of this Official Statement. Principal of and interest on the Notes are payable in lawful moneys of the United States of America upon maturity, and interest on the Notes will be computed on the basis of a 360-day year comprised of twelve 30-day months and accrues from the date of delivery.

The Notes will be dated the date of delivery and will mature on July 23, 2024. The Notes are to be delivered as fully registered Notes, without coupons, and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company (“ DTC”), New York, New York. DTC will act as securities depository of the Notes. Purchases will be made in book-entry form only, in the principal amount of $5,000 or any integral multiple thereof.

* Preliminary; subject to change.

2 Purpose of Issue

Proceeds of the Notes will provide moneys to meet the City’s General Fund cash flow requirements during the 2024-25 fiscal year commencing July 1, 2024, and ending June 30, 2025, including current expenses, capital expenditures, and the discharge of other obligations or indebtedness.

Book-Entry Only System

DTC will act as securities depository for the Notes. The Notes will be issued as fully - registered certificates registered in the name of Cede & Co. (DTC’s partnership nominee). One fully-registered certificate will be issued for each maturity of the Notes, each in the aggregate principal amount of such maturity, and will be deposited with DTC. See “APPENDIX E – BOOK- ENTRY ONLY SYSTEM.”

So long as the Notes are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to the principal and interest with respect to the Notes will be made to DTC as provided as in the representation letter delivered on the date of issuance of the notes. The City cannot and does not give any assurances that DTC, participants in DTC’s book-entry only system (“DTC Participants”) or others will distribute payments of principal, interest or premium, if any, with respect to the Notes paid t o DTC or its nominee as the registered owner, or will distribute any prepayment notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. The City is not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to a Beneficial Owner with respect to the Notes or an error or delay relating thereto.

SECURITY FOR AND SOURCES OF PAYMENT OF THE NOTES

Security for the Notes

The principal amount of the Notes, together with the interest thereon, is payable from Unrestricted Moneys, being the first taxes, income, revenue, cash receipts, and other moneys that are received by the City for the General Fund for fiscal year 2024-25 and which are generally available for the payment of current expenses and other obligations of the City. Estimated Unrestricted Moneys exceed estimated payment requirements by more than eight to one. See “THE NOTES – Available Sources of Payment.”

As security for the repayment of principal of and interest on the Notes, the City has pledged to deposit into a special fund designated as the “2024- 25 Tax and Revenue Anticipation Note Special Account” (the “Special Account”) the first Unrestricted Moneys to be received by the City as follows: (a) an amount equal to fifty percent (50%) of the principal amount of the Notes in the month of January, 2025; (b) an amount equal to fifty percent (50%) of the principal amount of the Notes in the month of May, 2025; and (c) an amount sufficient to pay interest as due on the Notes at their maturity, in the month of June, 2025 (such pledged amounts, the “Pledged Revenues”).

The Notes are equally and ratably secured by the City's pledge of the Pledged Revenues.

The principal of the Notes and the interest thereon shall constitute a first lien and charge against and shall be paid from the first moneys received by the City from such Pledged Revenues, and to the extent not so paid shall be paid from any other moneys of the City lawfully available therefor. In the event there are insufficient Unrestricted Moneys received by the City to permit the

3 deposits into the Special Account of the full amount of the Pledged Revenues to be deposited in the applicable month, by the last business day of such month, then the amount of such deficiency shall be satisfied and made up from any other moneys of the City lawfully av ailable for the payment of the Notes and the interest thereon.

All Pledged Revenues, as and when received, shall be deposited by the City in to the Special Account, which will be held by the City for the payment of the principal of and interest on the Notes at maturity. Amounts deposited by the City into the Special Account shall be applied solely for the purpose of paying the principal of and interest on the Notes. Such amounts shall be invested by the City in legal investments, as permitted by Section 53601 of the Government Code of the State. See “CITY INVESTMENT POLICY AND PORTFOLIO.”

Available Sources of Repayment

The Notes, in accordance with State law, are general obligations of the City, but are payable only out of Unrestricted Moneys, which include the taxes, income, revenues, cash receipts and other moneys that are received by the City for the General Fund for fiscal year 2024- 25 and that are generally available for payment of current expenses and other obligations of the City. The Constitution of the State substantially limits the City's ability to levy ad valorem taxes.

See “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUES AND APPROPRIATIONS.” The City may, under existing law, issue the Notes only if the principal of, and interest on, the Notes will not exceed 85% of the estimated uncollected Unrestricted Moneys that will be available for the repayment of the Notes.

The Note coverage ratio is shown in the following table and is the ratio of estimated Unrestricted Moneys to the amount of Unrestricted Moneys needed to pay principal of and interest on the Notes.

4 The table below gives detail as to the sources of estimated Unrestricted Moneys and the Note Coverage Ratio.

CITY OF BERKELEY
Estimated Unrestricted Moneys
Fiscal Year 2024-25

Source Amount
Available Cash Balance, July 1, 2024 $61,694,764
Taxes (including property tax, sales tax and other taxes) 220,023,117 Other Revenue 96,907,117
Proceeds of the Notes(1)* 36,615,000
Transfers In 11,504,245

TOTAL UNRESTRICTED MONEYS* $426,744,243

ESTIMATED PRINCIPAL PLUS INTEREST NEEDED FOR NOTE REPAYMENT* $37,795,000

NOTE COVERAGE RATIO* 11.29x

* Preliminary; subject to change.
(1) Excluding purchaser’s discount and costs of issuance.

Source: City of Berkeley Finance Department.

Monthly Cash Flows

The City has prepared the accompanying monthly General Fund cash flow statements covering fiscal year 2023-24 and the projected fiscal year 2024-25. The General Fund is used to finance the ordinary operations of the City and is available for any legal authorized purposes.

While expenditures generally occur evenly throughout the fiscal year, cash receipts occur unevenly. As a result, the General Fund cash balance tends to show a deficit during parts of the fiscal year. The projections are based on the City’s budget and current financial condition.

5 City of Berkeley
Fiscal Year 2023-24 Actual and Projected General Fund Cash Flows (1)(2)

Actual Projected
July August September October November December January February March April May June TOTAL Beginning Balance $78,441,119 $27,694,592 $17,893,028 $17,239,691 $11,619,295 $5,117,238 $45,881,748 $43,036,337 $45,990,308 $63,337,291 $97,495,081 $85,996,462 $78,441,119

CASH RECEIPTS
Property Tax $2,596,237 $3,812,660 $5,720,193 $1,862,945 $2,389,829 $45,022,897 $1,156,102 $955,488 $12,564,474 $26,723,408 $3,743,997 $6,810,816 $113,359,047 Sales Tax 1,913,663 1,192,395 1,487,788 1,636,065 11,897 3,063,749 1,597,530 1,750,245 1,417,448 1,496,554 1,709,403 1,569,516 18,846,252 Other Taxes 3,440,493 2,371,101 2,493,930 2,945,175 2,185,534 12,071,156 4,744,681 15,123,546 12,797,017 16,444,108 3,411,753 2,540,636 80,569,131 License and Permits 198,040 141,855 75,413 51,668 42,968 36,341 45,584 47,434 57,073 43,922 398,790 317,187 1,456,275 Franchises 7,607 150,124 0 0 149,903 0 7,341 141,634 0 1,335,082 157,119 0 1,948,811 Subventions & Grants 0 84,474 50,000 41,624 0 113,496 0 160,791 191,835 0 114,672 1,300,300 2,057,191 Service Fees 690,658 1,239,474 948,538 572,149 719,169 909,271 1,129,563 1,222,695 1,013,101 640,853 895,773 904,533 10,885,776 Fines and Penalties 683,628 551,035 598,733 491,673 545,561 486,890 655,111 246,360 456,950 556,766 559,479 378,093 6,210,278 Rents and Royalties 23,440 28,807 32,979 21,543 18,396 25,253 27,626 21,960 22,207 20,817 17,216 24,582 284,825 Interest Income 1,251,901 361,088 1,109,134 1,424,539 1,341,992 410,404 1,820,808 659,395 701,873 674,007 3,827,111 1,434,847 15,017,098 CalPERS Discount 91,522 114,402 114,402 114,402 114,402 171,603 114,402 114,402 114,402 114,402 171,603 137,282 1,487,226 Miscellaneous 72,909 176,629 6,924 16,383 8,115 23,741 9,571 83,267 7,640 99,603 7,927 9,586 522,296 Transfers In/Indirect Costs 1,973,849 734,099 735,270 2,119,995 749,878 991,950 2,105,150 747,307 750,027 4,469,830 745,314 0 16,122,670 CalPERS Prepayments from Other Depts 2,907,875 3,421,030 3,421,030 3,421,030 3,421,030 1,710,515 3,421,030 3,421,030 3,421,030 3,421,030 3,421,030 3,421,030 38,828,687 TRAN Proceeds 24,003,685 0 0 0 0 0 0 0 0 0 0 0 24,003,685 TOTAL RECEIPTS $39,855,508 $14,379,174 $16,794,333 $14,719,190 $11,698,674 $65,037,265 $16,834,500 $24,695,552 $33,515,077 $56,040,381 $19,181,187 $18,848,408 $331,599,248

CASH DISBURSEMENTS
General Government $4,336,140 $3,181,645 $2,958,655 $2,989,001 $3,462,678 $4,220,647 $3,664,941 $3,914,869 $3,251,821 $3,111,287 $3,586,670 $4,333,964 $43,012,318 Public Safety 7,266,250 10,002,134 11,041,172 11,133,244 10,840,142 15,020,924 11,224,136 10,841,222 10,482,093 9,960,841 9,979,494 17,616,973 135,408,626 Highways and Streets 130,296 184,567 520,368 145,031 187,807 412,989 228,272 152,881 140,759 307,789 188,312 (397,833) 2,201,238 Health and Human Service 768,909 1,050,994 981,935 1,067,138 1,083,942 1,342,221 1,090,785 1,209,268 1,388,377 1,336,177 1,154,534 2,159,447 14,633,727 Culture - Recreation 672,950 1,007,458 761,319 1,571,409 776,698 1,003,482 963,658 736,467 711,221 798,789 791,687 1,580,490 11,375,628 Urban Redevelopment/Housing 565,046 5,874,118 832,817 795,301 2,124,306 1,553,394 2,964,684 1,495,136 832,303 1,782,013 1,881,912 1,255,767 21,956,797 Econ Dev & Assistance 397,644 482,331 331,200 286,029 201,396 353,344 330,327 123,580 269,488 115,056 119,562 431,772 3,441,730 Transfers Out/Other 24,528,424 162,752 162,752 4,645,309 162,752 162,752 (11,359,477) 162,752 162,752 7,553,287 167,634 0 26,511,685 Transfer Out to Pension Saving Fund 2,000,000 0 371,807 0 0 371,807 0 0 371,807 0 371,807 3,487,226 Transfer Out to Stabilization Reserve Fund 0 0 0 0 0 0 0 0 0 0 0 7,490,000 7,490,000 Transfer Out to Catastrophic Reserve Fund 0 0 0 0 0 0 0 0 0 0 0 6,130,000 6,130,000 CalPERS Unfunded Pension Liability Prepayment 44,473,386 0 0 0 0 0 0 0 0 0 0 0 44,473,386 TRAN Principal Pledge 0 0 0 0 0 0 11,810,000 0 0 0 11,810,000 23,620,000 TRAN Interest Pledge 0 0 0 0 0 0 0 0 0 0 0 1,177,719 1,177,719 Advances from GF/(Repayment to GF) 5,462,991 2,234,739 (514,353) (2,292,875) (638,991) (168,805) (1,237,415) 3,105,406 (1,070,719) (3,454,455) 1,000,000 1,000,000 3,425,524 TOTAL DISBURSEMENTS $90,602,035 $24,180,738 $17,447,671 $20,339,586 $18,200,731 $24,272,755 $19,679,910 $21,741,581 $16,168,094 $21,882,590 $30,679,806 $43,150,107 $348,345,603

Interfund Borrowings $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Net Cash Flow ($50,746,527) ($9,801,563) ($653,337) ($5,620,396) ($6,502,057) $40,764,510 ($2,845,411) $2,953,971 $17,346,983 $34,157,791 ($11,498,619) ($24,301,698) ($16,746,355)

Ending Balance $27,694,592 $17,893,028 $17,239,691 $11,619,295 $5,117,238 $45,881,748 $43,036,337 $45,990,308 $63,337,291 $97,495,081 $85,996,462 $61,694,764 $61,694,764

(1) Actual through April 30, 2024.
(2) Cash and investment balances provided in the table above represent the City’s available cash balance (i.e., General Fund cash and investments less the Stabilization and Catastrophic Reserve Fund cash balances and short term liabilities).

Source: City of Berkeley.

6 City of Berkeley
Fiscal Year 2024-25 Projected General Fund Cash Flows (1) (Including the Notes)

July August September October November December January February March April May June TOTAL Beginning Balance $61,694,764 $29,240,390 $28,469,872 $26,958,277 $17,253,633 $10,926,810 $64,104,773 $38,873,243 $41,051,047 $59,586,533 $93,314,252 $74,089,454 $61,694,764

CASH RECEIPTS
Property Tax $3,183,174 $4,674,596 $7,013,369 $2,284,105 $2,930,103 $55,201,321 $1,417,464 $1,171,497 $15,404,952 $32,764,826 $4,590,411 $8,350,552 $138,986,371 Sales Tax 2,034,027 1,267,393 1,581,365 1,738,968 12,645 3,256,449 1,698,010 1,860,330 1,506,601 1,590,682 1,816,920 1,668,233 20,031,622 Other Taxes 2,605,064 1,795,344 1,888,348 2,230,020 1,654,837 9,140,006 3,592,565 11,451,207 9,689,612 12,451,106 2,583,302 1,923,712 61,005,124 License and Permits 202,001 144,692 76,921 52,701 43,827 37,068 46,496 48,382 58,215 44,800 406,766 323,531 1,485,400 Franchises 7,114 140,396 0 0 140,189 0 6,866 132,456 0 1,248,569 146,938 0 1,822,528 Subventions & Grants 0 84,474 50,000 41,624 0 113,496 0 160,791 191,835 0 114,672 1,300,300 2,057,191 Service Fees 490,742 880,700 673,977 406,536 511,001 646,076 802,603 868,777 719,852 455,354 636,485 642,709 7,734,813 Fines and Penalties 653,061 526,396 571,962 469,689 521,167 465,120 625,819 235,345 436,518 531,871 534,463 361,188 5,932,600 Rents and Royalties 115,214 141,594 162,100 105,889 90,422 124,124 135,789 107,941 109,156 102,324 84,621 120,826 1,400,000 Interest Income 1,098,876 388,936 1,000,813 1,258,804 1,191,283 476,063 1,582,939 632,940 667,686 644,893 3,270,818 1,285,951 13,500,000 CalPERS Discount 115,321 135,672 135,672 135,672 135,672 203,508 135,672 135,672 135,672 135,672 135,672 223,859 1,763,734 Miscellaneous 1,182,188 2,863,967 112,275 265,639 131,586 384,948 155,190 1,350,132 123,882 1,615,015 128,534 155,440 8,468,797 Transfers In/Indirect Costs 1,408,429 523,813 524,648 1,512,711 535,071 707,800 1,502,119 533,237 535,178 3,189,424 531,815 0 11,504,245 CalPERS Prepayments from Other Depts 3,448,519 4,057,081 4,057,081 4,057,081 4,057,081 6,085,622 4,057,081 4,057,081 4,057,081 4,057,081 4,057,081 6,694,184 52,742,054 TRAN Proceeds 36,515,440 0 0 0 0 0 0 0 0 0 0 0 36,515,440 TOTAL RECEIPTS $53,059,170 $17,625,055 $17,848,531 $14,559,440 $11,954,884 $76,841,600 $15,758,613 $22,745,788 $33,636,239 $58,831,617 $19,038,497 $23,050,484 $364,949,919

CASH DISBURSEMENTS
General Government $4,552,947 $3,340,728 $3,106,588 $3,138,451 $3,635,812 $4,431,680 $3,848,188 $4,110,612 $3,414,412 $3,266,851 $3,766,004 $4,550,662 $45,162,934 Public Safety 7,629,563 10,502,241 11,593,230 11,689,906 11,382,149 15,771,971 11,785,343 11,383,283 11,006,197 10,458,883 10,478,469 18,497,822 142,179,057 Highways and Streets 136,811 193,795 546,386 152,283 197,197 433,638 239,685 160,525 147,797 323,178 197,728 (417,725) 2,311,299 Health and Human Service 807,355 1,103,543 1,031,032 1,120,495 1,138,139 1,409,332 1,145,324 1,269,732 1,457,796 1,402,986 1,212,260 2,267,420 15,365,413 Culture - Recreation 706,598 1,057,831 799,385 1,649,980 815,533 1,053,656 1,011,840 773,290 746,782 838,728 831,272 1,659,514 11,944,410 Urban Redevelopment/Housing 593,298 2,020,098 874,458 835,066 2,230,521 1,631,064 3,112,919 1,569,893 873,918 1,871,114 1,976,008 1,318,555 18,906,911 Econ Dev & Assistance 417,526 506,448 347,760 300,330 211,466 371,011 346,843 129,760 282,962 120,809 125,541 453,361 3,613,816 Transfers Out/Other 13,827,394 170,889 170,889 4,877,574 170,889 170,889 0 170,889 170,889 7,930,951 176,016 0 27,837,270 Transfer Out to Pension Saving Fund 2,100,000 0 390,397 0 0 390,397 0 0 0 390,397 0 390,397 3,661,587 Transfer Out to Stabilization Reserve Fund 0 0 0 0 0 0 0 0 0 0 0 7,864,500 7,864,500 Transfer Out to Catastrophic Reserve Fund 0 0 0 0 0 0 0 0 0 0 0 6,436,500 6,436,500 CalPERS Unfunded Pension Liability Prepayment 52,742,054 0 0 0 0 0 0 0 0 0 0 0 52,742,054 TRAN Principal Pledge 0 0 0 0 0 0 18,000,000 0 0 0 18,000,000 0 36,000,000 TRAN Interest Pledge 0 0 0 0 0 0 0 0 0 0 0 1,795,000 1,795,000 Advances from GF/(Repayment to GF) 2,000,000 (500,000) 500,000 500,000 (1,500,000) (2,000,000) 1,500,000 1,000,000 (3,000,000) (1,500,000) 1,500,000 3,000,000 1,500,000 TOTAL DISBURSEMENTS $85,513,544 $18,395,574 $19,360,125 $24,264,084 $18,281,708 $23,663,637 $40,990,142 $20,567,984 $15,100,754 $25,103,897 $38,263,296 $47,816,007 $377,320,752

Interfund Borrowings $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Net Cash Flow ($32,454,374) ($770,519) ($1,511,594) ($9,704,644) ($6,326,823) $53,177,963 ($25,231,529) $2,177,804 $18,535,486 $33,727,720 ($19,224,799) ($24,765,523) ($12,370,833)

Ending Balance $29,240,390 $28,469,872 $26,958,277 $17,253,633 $10,926,810 $64,104,773 $38,873,243 $41,051,047 $59,586,533 $93,314,252 $74,089,454 $49,323,931 $49,323,931 $61,694,764 $29,240,390 $28,469,872 $26,958,277 $17,253,633 $10,926,810 $64,104,773 $38,873,243 $41,051,047 $59,586,533 $93,314,252 $74,089,454 $61,694,764

(1) Cash and investment balances provided in the table above represent the City’s available cash balance (i.e., General Fund cash and investments less the Stabilization and Catastrophic Reserve Fund cash balances and short-term liabilities).

Source: City of Berkeley.

7 CITY INVESTMENT POLICY AND PORTFOLIO

The authority to invest the City’s funds is derived from a resolution adopted annually by the City Council delegating to the Director of Finance and the Treasurer of the City the authority to invest these funds within the guidelines of Section 53600 et seq. of the Government Code of the State (the “Government Code”). The Government Code also directs the City to present an annual investment policy (the “Investment Policy”) for confirmation to the City Council. The City Council voted to affirm the Investment Policy and designate the investment authority on July 1, 2023. The Investment Policy may be revised by the City Council at any time.

The objectives of the Investment Policy are preservation of capital, liquidity and yield. The Investment Policy addresses the soundness of financial institutions in which the City may deposit funds, types of investment instruments permitted by the City and the Government Code, investment duration and the amount which may be invested in certain instruments. The Investment Policy also reflects and supports the City’s policy positions on important social and environmental issues, as contained in formal City Council actions including the Nuclear -Free Berkeley Act, the Responsible Investment Ordinance, the Oppressive States Contract Resolution and Divestment from Publicly -Traded Fossil Fuel Companies and Gun Manufacturers and Tobacco companies. Summarized below are the permitted investments under the Investment Policy. These policies may further restrict investment options available to the City.

Authorized Investment Type
Maximum
Maturity
Maximum
Percentage/Dollar
of Portfolio
Maximum
Investment
in One
Issuer
Bank/Time Deposit Accounts 5 years 100% N/A
Money Market Funds N/A 100 N/A
Repurchase Agreements 1 year 10 N/A
Reverse Repurchase Agreements 7 days 10 N/A
Banker’s Acceptances 7 days 40 30%
U.S. Government Securities
(Treasury bills, Notes and Bonds) 10 years* 100 N/A
U.S. Agency Securities by Agency 10 years* 100 N/A
Negotiable Certificates of Deposit 10 years* 30 $250,000 Local Agency Bonds 5 years* 100 N/A
Commercial Paper 180 days 25 $5M or 2%
Medium Term Notes 10 years
30 years* 30 30%
Public Bank Obligations
5 years
10% of
unrestricted
investments N/A

Source: City of Berkeley
* Maturities over five years, up to 30 years, are authorized for the three Retiree Medical Plan Trusts and debt service reserve funds.

8 As of June 30, 2023, the City portfolio included $526,781,913 in pooled investments. The average life of the investments was 1,286 days and the weighted yield was 3.062%. The following is the market value of investments held by the City as of June 30, 2023:

Security
Market
Value
% of Total
Portfolio
Certificates of Deposit $499,888 0.1%
Medium Term Notes 118,953,573 22.6
Federal Agency 402,491,251 76.4
Municipal Bonds 4,837,200 0.9
TOTAL(1): $526,781,913(1) 100.0%

(1) Totals may not sum due to rounding.

Source: City of Berkeley Finance Department.

SPECIAL RISK FACTORS

The following information should be considered by prospective investors in evaluating the Notes; however, this information does not purport to be an exhaustive listing of the risks and other considerations, which may be relevant to an investment in the Notes.

Bankruptcy Considerations

In 1994, Orange County, California issued its 1994 -1995 Tax and Revenue Anticipation Notes (the “Orange County Notes” ) under the same statutory authority as the Notes. On December 6, 1994, Orange County filed a petition in bankruptcy. Subsequently, Orange County declined to set aside the taxes and revenues it had pledged for the repayment of the Orange County Notes and a noteholder brought suit to compel Orange County to do so. A March 8, 1995, ruling of the United States Bankruptcy Court for the Central District of California, held that the lien securing the Orange County Notes did not attach to revenues received by Orange County after the filing of its bankruptcy petition on December 6, 1994, and therefore, Orange County was not required to set aside the revenues pledged under the note resolution following the bankruptcy.

The Bankruptcy Court ruled that under the United States Bankruptcy Code (the “Bankruptcy Code”), the lien did not attach to revenues received by Orange County after December 6, 1994 , because the lien was a consensual security interest rather than a statutory lien. In July 1995, the United Stated District Court for the Central District of California reversed the decision of the Bankruptcy Court. Orange County appealed the decision of the District Court to the United States Court of Appeals for the Ninth Circuit. Before the Ninth Circuit rendered a decision , the parties settled their disputes. Accordingly, if the City were to file for bankruptcy, it is not clear whether it would be required to set aside revenues pledged under the Resolution as described above.

In addition, the Pledged Revenues and other moneys that will be set aside to pay the Notes will be held in the City’s General Fund, and these funds will be invested in the pooled investment fund. Should the City go into bankruptcy, a court might hold that the owners of the Notes do not have a valid lien on the Pledged Revenues. In that case, unless the owners could “trace” the funds, the owners would merely be unsecured creditors of the City. There can be no assurance that the owners of the Notes could successfully so “trace” the Pledged Revenues.

9 Limitations on Remedies

The rights of the owners of the Notes are subject to the limitations on legal remedies against cities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Additionally, enforceability of the righ ts and remedies of the owners of the Notes and the obligations incurred by the City, may become subject to the following: the Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the en forcement of creditor’s rights generally, now or hereafter in effect; equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Constitution; and the reasonable and necessary exercise in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Notes to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights.

COVID-19 Pandemic

As described in this Official Statement, while indications are that the COVID-19 pandemic is transitioning to an endemic stage, many variables will continue to contribute to the economic impact of the COVID -19 pandemic and the recovery. The ultimate impact of COVID -19 on the City’s operations and finances is not fully known, and it may be some time before the full impact of the COVID-19 pandemic is known. Future costs to the City could also be increased in the event that a sustained deterioration in global stock market values as an economic consequence of the COVID-19 pandemic negatively impacts the market value of assets held to fund the City’s pension plans, requiring future unanticipated increases in required plan contributions. Accordingly, prospective investors should consider that COVID -19 may adversely impact the City and its finances.

Climate Change

The adoption by the State of the California Global Warming Solutions Act of 2006 (AB 32) and subsequent companion bills demonstrate the commitment by the State to take action and reduce greenhouse gases (“GHG”) to 1990 levels by 2020 and 80% below 1990 levels by 2050.

The State Attorney General’s Office, in accordance with SB 375, now requires that local governments examine local policies and large-scale planning efforts to determine how to reduce greenhouse gas emissions. Additionally, the State adopted Senate Bill No. 32, which established a revised statewide GHG emission reduction target of 40% below 1990 levels by 2030.

The City is vulnerable to the impacts of climate change. The severity of these impacts will depend on the amount of greenhouse gas emissions produced worldwide over the coming decades and the City’s ability to adapt to the changing climate. These impacts will continue to grow in intensity and will disproportionately affect vulnerable communities such as the elderly, children, people with disabilities, and people with low incomes. In order to mitigate climate change locally, the City developed the Berkeley Climate Action Plan (CAP). The CAP sets a target of achieving 80% GHG reductions below 2000 levels by 2050. The City also has goals to become a fossil fuel free city, and reach 100% renewable electricity citywide by 2035. From 2000 to 2016, the City reduced its greenhouse gas emissions by 15% despite a population increase of approximately 18% in that same period. Community-wide emissions in 2019 decreased 26% from the 2000 baseline and decreased 4% from 2018. The City has moved beyond its initial emissions reduction goal and, on May 11, 2021, the City Council committed to become zero net emissions

10 by 2045, requiring an additional 74% reduction of GHG emissions. The City’s mitigation efforts include developing plans, programs and policies to:

• Reduce energy use in building construction and operation, in transportation by shifting travel to walking, biking, and transit, and by minimizing landfilled waste; • Clean the electricity used in the City and
• Electrify transportation and buildings to significantly reduce natural gas and petroleum use.

It is also critical that the City adapt to current and projected climate change impacts, including sea level rise, drought, severe storms, and extreme heat, in order to protect its community, infrastructure, buildings, and economy. The City has several plans that address climate adaptation including the Local Hazard Mitigation Plan, the Resilience Strategy, and the Climate Action Plan. The City is also developing a sea level rise plan for the Berkeley Marina and a green infrastructure plan. Some key climate resilience actions that the City is taking include implementing green infrastructure projects and identifying opportunities for clean energy assurance solutions, such as solar plus storage, for buildings. The City also actively participates in regional organizations such as the Bay Area Climate Adaptation Network to develop regional strategies and solutions to adapt to climate change.

Climate change will have new, direct impacts and will also exacerbate existing local natural hazards. Rising sea levels have the potential to impact infrastructure and community members in west Berkeley and the Berkeley waterfront. This could increase the City’s exposure to tsunami inundation and to flooding of critical infrastructure in these areas, which includes sanitary sewers, state highways, and railroad lines. Increased temperatures, when coupled with prolonged drought events, can increase the intens ity of wildfires that may occur, and pose significant health and safety risks for vulnerable communities. Shorter, more intense wet seasons could make flooding more frequent, and may increase the landslide risk in the Berkeley hills.

California may experience greater water and food insecurity, and drought may become a more persistent issue as the effects of climate change deepen.

Cybersecurity

The City and its departments face multiple cyber threats including, but not limited to, hacking, viruses, malware and other attacks on computers and other sensitive digital networks and systems. There have been, however, only limited cyber-attacks on the computer systems of the City. No assurances can be given that the security and operational control measures of the City will be successful in guarding against any and each cyber threat and attack . The results of any attack on the computer and information te chnology systems could have a material adverse impact on the operations of the City and damage the digital networks and systems. The resulting costs and/or impacts on operations and General Fund revenues could be material.

11 CONSTITUTIONAL AND STATUTORY PROVISIONS

AFFECTING CITY REVENUES AND APPROPRIATIONS

Limitations on Revenues

Article XIIIA of the California Constitution . Article XIIIA of the State Constitution, adopted and known as Proposition 13, was approved by the voters in June 1978. Section 1(a) of Article XIIIA limits the maximum ad valorem tax on real property to one percent of “full cash value,” and provides that such tax shall be collected by the counties and apportioned according to State law. Section 1(b) of Article XIIIA provides that the one -percent limitation does not apply to ad valorem taxes levied to pay interest and redemption charges on (i) indebtedness approved by the voters prior to July 1, 1978, or (ii) bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two- thirds of the votes cast on the proposition, or (iii) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. The tax for payment of the City’s general obligation bonds falls within the exception for bonds approved by a two-thirds vote.

Section 2 of Article XIIIA defines “full cash value” to mean the county assessor’s valuation of real property as shown on the fiscal year 1975-76 tax bill, or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred. The full cash value may be adjusted annually to reflect inflation at a rate not to exceed two percent per year, or to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction or may be reduced in the event of declining property value caused by substantial damage, destruction or other factors. Legislation enacted by the State Legislature to implement Article XIIIA provides that, notwithstanding any other law, local agencies may not levy any ad valorem property tax except the 1% base tax levied by each County and taxes to pay debt service on indebtedness approved by the voters as described above.

Since its adoption, Article XIIIA has been amended a number of times. These amendments have created a number of exceptions to the requirement that property be reassessed when purchased, newly constructed or a change in ownership has occurred. These exceptions include certain transfers of real property between family members, certain purchases of replacement dwellings for persons over age 55 and by property owners whose original property has been destroyed in a declared disaster, and certain improvements to accommodate disabled persons and for seismic upgrades to property. These amendments have resulted in marginal reductions in the property tax revenues of the City.

Both the California State Supreme Court and the United States Supreme Court have upheld the validity of Article XIIIA.

Article XIIIC and Article XIIID of the California Constitution . On November 5, 1996, the voters of the State approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 adds Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges.

On November 2, 2010, California voters approved Proposition 26, entitled the “Supermajority Vote to Pass New Taxes and Fees Act.” Section 1 of Proposition 26 declares that

12 Proposition 26 is intended to limit the ability of the State Legislature and local government to circumvent existing restrictions on increasing taxes by defining the new or expanded taxes as “fees.” Proposition 26 amended Articles XIIIA and XIIIC of the St ate Constitution. The amendments to Article XIIIA limit the ability of the State Legislature to impose higher taxes (as defined in Proposition 26) without a two-thirds vote of the Legislature. The amendments to Article XIIIC define “taxes” that are subject to voter approval as “any levy, charge, or exaction of any kind imposed by a local government,” with certain exceptions.

Taxes. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City (“ general taxes”) require a majority vote; taxes for specific purposes (“ special taxes”), even if deposited in the City’s General Fund, require a two -thirds vote. The voter approval requirements of Proposition 218 reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be a ble to impose, extend or increase such taxes in the future to meet increased expenditure needs.

Property-Related Fees, Charges and Assessments . Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain property- related fees, charges, and assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments must confer a “special benefit,” as defined in A rticle XIIID, over and above any general benefits conferred, (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected party, and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners.

Reduction or Repeal of Taxes, Fees and Charges . Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City’s General Fund. If such repeal or reduction occurs, the City’s ability to pay debt service on the Notes could be adversely affected.

Burden of Proof. Article XIIIC provides that local government “bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity.” Similarly, Article XIIID provides that in “any legal action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance” with Article XIIID.

13 Impact on City’s General Fund. The approval requirements of Articles XIIIC and XIIID reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase the taxes, fees, charges or taxes in the future that the City may need to meet increased expenditure needs.

The City does not believe that any material source of General Fund revenue is subject to challenge under Articles XIIIC or XIIID.

Judicial Interpretation. The interpretation and application of Articles XIIIC and XIIID will ultimately be determined by the courts with respect to a number of the matters discussed below, and it is not possible at this time to predict with certainty the outcome of such determination.

Expenditures and Appropriations

Article XIIIB of the California Constitution. In addition to the limits Article XIIIA imposes on property taxes that may be collected by local governments, certain other revenues of the State and local governments are subject to an annual “appropriations limit” or “Gann Limit” imposed by Article XIIIB of the State Constitution, which effectively limits the amount of such revenues that government entities are permitted to spend. Article XIIIB, approved by the voters in June 1979, was modified substantially b y Proposition 111 in 1990. The appropriations limit of each government entity applies to “proceeds of taxes,” which consist of tax revenues, state subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed “the cost reasonably borne by such entity in providing the regulation, product or service.” “Proceeds of taxes” exclude tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on the appropriation of funds which are not “proceeds of taxes,” such as reasonable user charges or fees, and certain other non-tax funds.

Article XIIIB also does not limit appropriation of local revenues to pay debt service on bonds existing or authorized by January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal go vernment, appropriations for qualified capital outlay projects, and appropriation by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990, levels. The appropriations limit may also be exceede d in cases of emergency; however, the appropriations limit for the three years following such emergency appropriation must be reduced to the extent by which it was exceeded, unless the emergency arises from civil disturbance or natural disaster declared by the Governor, and the expenditure is approved by two -thirds of the legislative body of the local government.

The State and each local government entity have their own appropriations limit. Each year, the limit is adjusted to allow for changes, if any, in the cost of living, the population of the jurisdiction, and any transfer to or from another government entity of financial responsibility for providing services. Each school district is required to establish an appropriations limit each year.

In the event that a school district’s revenues exceed its spending limit, the district may increase its appropriations limit to equal its spending by taking appropriations limit from the State.

Proposition 111 requires that each agency’s actual appropriations be tested against its limit every two years. If the aggregate “proceeds of taxes” for the preceding two -year period exceed the aggregate limit, the excess must be returned to the agency’s taxpayers through tax rate or fee reductions over the following two years.

14 Future Initiatives

Article XIIIA, Article XIIIB, Article XIIIC, Article XIIID and Proposition 111 were each adopted as measures that qualified for the ballot pursuant to California’s initiative process. From time to time other initiative measures could be adopted, further affecting City revenues or the City’s ability to expend revenues. The nature and impact of these measures cannot be predicted by the City.

LEGAL OPINION

The statements of law and legal conclusions set forth in this Official Statement under the heading “TAX MATTERS” have been reviewed by Bond Counsel. Bond Counsel's employment is limited to a review of the legal proceedings required for the authorization of the Notes and to rendering the opinion discussed below. Such opinion will not consider or extend to any documents, agreements, representations, offering circulars or other material of any kind concerning the Notes not mentioned in this paragraph. Bond Counsel takes no responsibility for the accuracy, completeness or fairness of this Official Statement. Bond Counsel’s compensation is contingent upon the delivery of the Notes. Certain legal matters will be passed upon for the City by the City Attorney.

TAX MATTERS

In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Notes is excluded from gross income for federal income t ax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax.

The opinions set forth in the preceding paragraph are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Tax Code") that must be satisfied subsequent to the issuance of the Notes. The City has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Notes.

Tax Treatment of Original Issue Discount and Premium . If the initial offering price to the public at which a Note is sold is less than the amount payable at maturity thereof, then such difference constitutes "original issue discount" for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public at which a Note is sold is greater than the amount payable at maturity thereof, then such difference constitutes "original issue premium" for purpos es of federal income taxes and State of California personal income taxes. De minimis original issue discount and original issue premium are disregarded.

Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Note on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates) . The amount of original issue discou nt accruing

15 during each period is added to the adjusted basis of such Notes to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Note . The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Notes who purchase the Notes after the initial offering of a substantial amount of such maturity. Owners of such Notes should consult their own tax advisors with respect to the tax consequences of ownership of Not es with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Notes under federal alternative minimum taxes.

Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Note (said term being the shorter of the Note's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Note for purposes of determining taxable gain or loss upon disposition . The amount of original issue premium on a Note is amortized each year over the term to maturity of the Note on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates) . Amortized Note premium is not deductible for federal income tax purposes. Owners of premium Notes, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Notes.

In the further opinion of Bond Counsel, interest on the Notes is exempt from California personal income taxes.

Owners of the Notes should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Notes may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Notes other than as expressly described above.

A copy of the proposed form of opinion of Bond Counsel is attached hereto as APPENDIX C.

16 CONTINUING DISCLOSURE

The City has covenanted for the benefit of the holders of the Notes to provide notices of the occurrence of certain enumerated events. The notices of enumerated events will be filed by the City with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the notices of enumerated events is summarized under the caption “APPENDIX D – Form of Continuing Disclosure Certificate.” These covenants have been made in order to assist the purchaser of the Notes in complying with Rule 15c2- 12(b)(5) promulgated under the Securities Exchange Act of 1934, as amended (the “Rule”).

The City and its related governmental entities have previously entered into numerous disclosure undertakings under the Rule in connection with the issuance of long -term obligations See Note 8 of the City’s Annual Comprehensive Financial Report attached to this Official Statement as APPENDIX B.

In the previous five years, the City failed to timely file a material event notice in connection with a rating change for one series of the City’s outstanding bonds. To ensure future compliance with its continuing disclosure undertakings, the City has developed procedures for including all required continuing disclosure information in the supplementary section of its audited financial statements. In addition, the City has engaged NHA Advisors, LLC, to review this information annually to ensure compliance with its continuing disclosure undertakings , including the undertaking to be entered into in connection with the Notes.

ABSENCE OF MATERIAL LITIGATION

No litigation is pending or threatened concerning the validity of the Notes, and a certificate to that effect will be furnished by the City at the time of the original delivery of the Notes. The City is not aware of any litigation pending or threatened questioning the political existence of the City or contesting the City's ability to receive ad valorem taxes or to collect other Unrestricted Moneys or contesting the City's ability to issue and retire the Notes.

There are a number of lawsuits and claims pending against the City. The aggregate amount of the uninsured liabilities of the City, and the timing of any anticipated payments of judgments that may result from suits and claims, will not, in the opinion of the City, materially affect the finances of the City or impair its ability to repay the Notes. A certificate of the City to this effect will be available at the time of original delivery of the Notes.

17 UNDERWRITING

The Notes were purchased by __________ (the “Purchaser”) at a price of $________ (representing $________ aggregate principal amount of the Notes plus a purchase premium of $_________, less a Purchaser’s discount of $______) . The purchase contract for the Notes provides that the Purchaser will purchase all the Notes if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in such purchase contract, the approval of certain legal matters by counsel and certain other conditions.

The Purchaser may offer and sell Notes to certain dealers and others at prices lower than the offering price stated on the cover page hereof. The offering price may be changed from time to time by the Purchaser.

MUNICIPAL ADVISOR

The City has retained NHA Advisors , LLC, San Rafael, California, as municipal advisor (the “Municipal Advisor”) in connection with the preparation of this Official Statement and with respect to the issuance of the Notes. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor is a municipal advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. The Municipal Advisor’s compensation is contingent upon the delivery of the Notes.

RATING

S&P Global Ratings, a business unit of Standard & Poor’s Financial Services LLC , has assigned a rating to the Notes as shown on the cover of this Official Statement. The City supplied certain information to the rating agency to be considered in evaluating the Notes. The rating issued reflects only the views of such rating agency, and any explanation of the significance of such rating should be obtained from the rating agency. There is no assurance that the rating will be retained for any given period of time or that the same will not be revised downward or withdrawn entirely by such rating agency if, in its judgment, circumstances so warrant. Any downward revision or withdrawal of the rating obtained may have an adverse effect on the market price of the Notes.

18 ADDITIONAL INFORMATION

The purpose of this Official Statement is to supply information to purchasers of the Notes.

Quotations from and summaries and explanations of the Notes and the Resolution and of statutes and documents contained herein do not purport to be complete, and reference is hereby made to the Resolution, statutes and documents for full and complete statements of their provisions.

Additional information can be obtained from the City’s Director of Finance.

This Official Statement speaks only as of its date , and the information presented in this Official Statement is subject to change. Any statements in this Official Statement involving matters of opinion, whether or not expressly stated , are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement among the City and any purchaser or owners of the Notes. This Official Statement and its distribution have been authorized and approved by the City Council of the City.

CITY OF BERKELEY

By:

City Manager

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APPENDIX A

CERTAIN INFORMATION CONCERNING THE CITY OF BERKELEY

Introduction

The City of Berkeley, California (the “City”) is located in Alameda County (the “County”) on the east side of the San Francisco Bay, approximately 10 miles northeast of San Francisco.

The City encompasses a total area of approximately 19 square miles and had an estimated population of 125,327 as of January 1, 2024, giving it the highest population density of any city in the East Bay. The City is defined to a large degree, both culturally and economically, by the presence of the University of California campus located on the eastern side of the City. The University of California is a major component of the City's economy, employing more than 227,000 full and part-time workers across all University of California campuses statewide.

The City is among the oldest in California. The City was founded in 1864, incorporated as a town in 1878, and incorporated as a city in 1909. The City's first charter was adopted in 1895.

Population

Population figures for the City, County and State for the last five years are shown in the following table.

CITY OF BERKELEY
Population Estimates
As of January 1

Year
City of
Berkeley
County of
Alameda
State of
California
2020 122,364 1,663,114 39,648,938
2021 120,418 1,663,371 39,286,510
2022 123,188 1,644,248 39,078,674
2023 123,562 1,636,194 38,940,231
2024 125,327 1,641,869 39,128,162

Source: State Department of Finance estimates (as of January 1).

City Government

The City operates under a Council-Manager form of government. The City is governed by a nine-member City Council, eight of whom are elected by district, plus the Mayor, who is elected on a city-wide basis. The Mayor and the City Council members serve four-year terms. The Council appoints a City Manager who is responsible for daily administration of City affairs and preparation and submission of the annual budget under the direction of the Mayor and the City Council for the Mayor's submission to the City Council. The City Manager appoints a Director of Finance to supervise the City's financial affairs. The Director of Finance also serves as the City's Treasurer.

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The City Attorney, City Clerk and Director of Finance are appointed by the City Manager subject to City Council approval. The City Auditor is elected at the same time as the Mayor.

Current members of the City Council are shown below:

Member District Term Expires
Jesse Arreguín Mayor 11/30/2024
Rashi Kesarwani 1 11/30/2026
Terry Taplin 2 11/30/2024
Ben Bartlett 3 11/30/2024
Vacant* 4 N/A
Sophie Hahn 5 11/30/2024
Susan Wengraf 6 11/30/2024
Cecilia Lunaparra 7 11/30/2026
Mark Humbert 8 11/30/2026
___________________
* The Councilmember position for District 4 is currently vacant. A special election to elect a new councilmember will be held on May 28, 2024 for District 4 .

CITY FINANCIAL INFORMATION

Although the City is including information about the City’s finances in this Appendix A, it is important to understand that the Notes described in this Official Statement are voter -approved general obligations of the City payable solely from the levy and collection of ad valorem property taxes, unlimited as to rate or amount, and are not payable from the general fund of the City.

Possible Impacts of COVID-19

As described in this Official Statement, while indications are that the COVID-19 pandemic is transitioning to its endemic stage, many variables will continue to contribute to the economic impact of the COVID -19 pandemic and the recovery. The ultimate impact of COVID -19 on the City’s operations and finances is not fully known, and it may be some time before the full impact of the COVID- 19 pandemic is known . The Notes described in this Official Statement are not secured by the City’s general fund, but rather are voter-approved general obligations of the City payable solely from the levy and collection of ad valorem property taxes, unlimited as to rate or amount, and are not payable from the general fund of the City. See “SPECIAL RISK FACTORS – COVID-19 Pandemic.”

Accounting Policies and Financial Reporting

The accounts of the City are organized on the basis of funds and account groups, to account for different activities. The operations of each fund are accounted for with a separate set of self -balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which the spending activities are controlled. The City’s general fund and other governmental fund types use the modified accrual basis of accounting. All of the City’s other funds, including proprietary fund types and fiduciary fund types use the accrual basis of accounting. The basis of accounting for all funds is more fully explained in the “Notes to the Financial Statements” contained in APPENDIX B.

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The City Council employs, at the beginning of each fiscal year, an independent certified public accountant who, at such time or times as specified by the City Council, at least annually, and at such other times as he or she shall determine, examines the combined financial statements of the City in accordance with generally accepted auditing standards, including such tests of the accounting records and such other auditing procedures as such accountant considers necessary.

As soon as practicable after the end of the fiscal year, a final audit and report is submitted by such accountant to the City Council and a copy of the financial statements as of the close of the fiscal year is published.

The City, all its funds and the funds of certain other component entities of the City are audited annually by a certified public accounting firm. The firm of Badawi and Associates, Certified Public Accounts, Oakland, California, is the City’s current audi tor (the “Auditor”). The annual comprehensive financial report of the City for fiscal year 2022- 23 is attached hereto as APPENDIX B. The City’s financial statements are public documents and are included within this Official Statement without the prior approval of the Auditor.

The Governmental Accounting Standards Board (“GASB”) published its Statement No. 34 “Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments” on June 30, 1999. Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States.

Generally, the basic financial statements and required supplementary information should include (i) Management’s Discussion and Analysis; (ii) government -wide financial statements prepared using the economic measurement focus and the accrual basis of accounting and fund financial statements prepared using both the current financial resources measurement focus and the modified accrual method of accounting (governmental funds) and funds using the economic measurement focus and the accrual basis of accounting (proprietary funds) and (iii) required supplementary information. The City’s financial statements are prepared in conformance with the requirements of Statement No. 34.

Comparative Financial Statements

The following tables provide a recent history of the City’s Comparative Balance Sheet, and both a recent history of General Fund revenues, expenditures, transfers, and ending fund balances and recently budgeted amounts.

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CITY OF BERKELEY

GENERAL FUND BALANCE SHEET
(Fiscal Year Ending June 30)
(Dollar amounts in thousands)

Actual Actual Actual Actual
2019-20 2020-21 2021-22 2022-23
ASSETS:

Cash and investments in treasury* $136,050 $146,849 $171,955 $160,249 Receivables (net of allowance as applicable):

Accounts 3,131 4,782 5,384 9,314
Interest 398 834 1,078 2,000
Taxes 6,502 13,092 10,795 9,083
Subventions/grants 1,582 1 -- --
Due from other funds 7,533 12,814 17,740 16,034
Notes receivable 4,820 6,197 13,818 15,954
Other 5 5 5 4
Prepaid Items -- -- -- --
Total assets 160,020 184,574 220,776 212,640

LIABILITIES:

Accounts payable 8,755 10,444 7,094 6,147
Accrued salaries and wages 7,009 8,081 8,934 3,541
Accrued interest payable 694 740 445 1,117
Advances from other funds 3,113 1,760 814 814
Deposits held 770 921 886 935
Unearned revenue -- -- -- --
Tax and revenue anticipation notes 34,780 42,405 44,660 28,000 Other liabilities 3,975 4,955 6,129 6,515
Total liabilities 59,095 69,307 68,962 47,070

Deferred Inflows of Resources 2,856 3,385 3,770 7,103

FUND BALANCES
Reserved for:

Assigned to 44,705 19,577 12,163 16,753
Nonspendable -- -- -- --
Restricted and Committed 4,820 35,941 60,697 71,799
Unreserved/Unassigned, report in:

General fund 48,544 56,364 75,184 69,915
Total fund balances 98,069 111,882 148,043 158,467

Total liabilities and fund balances $160,020 $184,574 $220,776 $212,640

* Cash and investments in treasury includes restricted cash and investments.

Source: City of Berkeley, Annual Comprehensive Financial Reports.

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CITY OF BERKELEY

STATEMENT OF GENERAL FUND

REVENUES, EXPENDITURES, TRANSFERS AND BALANCES
(Fiscal Year Ending June 30)
(Dollar amounts in thousands)

Actual

Actual

Actual

Actual
2019-20 2020-21 2021-22 2022-23
REVENUES:

Taxes $182,470 $187,395 $225,100 $216,259
Licenses and Permits 2,099 1,805 1,580 1,471
Subvention and Grants/Intergovernmental 1,771 3,700 652 1,589 Service Fees 8,597 6,990 7,806 9,812
Fines and Forfeitures 4,166 3,579 4,967 6,117
Rents 203 189 294 233
Franchises 1,812 1,714 1,713 1,811
Private contribution 179 184 45 134
Interest 9,287 8,110 (10,069) 3,261
Other 356 74 506 560
TOTAL REVENUES 210,941 213,740 232,595 241,248

EXPENDITURES:

General Government 24,693 27,357 29,693 32,732
Public Safety 118,793 120,179 124,901 128,306
Highways and Streets 2,289 3,163 3,833 3,055
Health and Human Services 20,423 19,320 17,897 15,695 Culture-Recreation 7,014 7,362 8,708 9,291
Community Development 9,041 9,258 12,693 16,592
Economic Development 5,879 2,534 3,005 3,643
Debt Service 473 139 98 496
Capital Outlay -- -- -- 1,494
TOTAL EXPENDITURES 188,605 189,313 200,827 211,304

Excess Revenues Over (Under) Expenditures 22,334 24,427 31,767 29,944

Transfers In(out)/Other (17,502) (10,614) 4,394 (19,520)

Net Change in Fund Balance 4,883 13,813 36,161 10,424

Fund Balance, July 1 93,236 98,069 111,882 148,043
Prior Period Adjustment

Fund Balance, June 30* $98,069 $111,882 $148,043 $158,467

* Totals may not sum due to rounding.

Source: City of Berkeley Annual Comprehensive Financial Reports

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General Fund Budget

Budgetary Process and Administration. The City employs a two-year budget process.

In year one of the biennial budget cycle, the City Council formally adopts authorized appropriations for the first fiscal year and approves “planned” appropriations for the second fiscal year. In year two, the City Council considers revisions and formally ado pts authorized appropriations for the second fiscal year. Although the budget cycle covers a two-year period, the City Charter requires that the City Council adopt an annual appropriations ordinance for each budget year.

From January to May of each year, the City Council meets publicly to discuss policies and priorities for the upcoming budget. The City Manager prepares a proposed budget based on input from department heads and presents this to the City Council by the first Monday in May of a budget year or as fixed by the City Council. The City also maintains additional budgetary controls to ensure compliance with the annual appropriated budget. The City Manager is authorized to transfer budgeted amounts within funds as deemed necessary to meet the City’s needs; however, revisions that alter the total budget or move amounts from one fund to another must be approved by the City Council.

Revenues and expenditures relating to the City’s general governmental operations are budgeted and accounted for in the City’s general fund, including public safety, highways and streets, health, housing and human services, culture and recreation, community development and economic development. General taxes and fees support most of these activities. The “business” or proprietary activities of the City are accounted for in each of eight enterprise funds, which include those established for Refuse Collection, Marina Operations, Sanitary Sewers, Clean Storm Water, Permit Service Center, Off-Street Parking, Parking Meter, and Building Purchases & Management. These activities are intended to be completely or largely self-supporting through user fees and charges.

The balance of this Appendix is concerned with the operations and performance of the City’s General Fund, unless otherwise noted.

2024 Mid-Biennial Update. The City generally adopts a biennial budget, adopting its Fiscal Years 2022-23 and 2023-24 biennial budget on June 28, 2022. On June 27, 2023, the City adopted a mid- biennial budget update for Fiscal Years 2023- 24 (the “2024 Mid-Biennial Update”). The purpose of the 2024 Mid-Biennial Update is to revise the previously adopted budget based upon changes in revenue assumptions or to address any new critical expenditures that emerged since the budget was adopted last June 2022.

According to the 2024 Mid-Biennial Update, Citywide expenditures total $728.6 million, an increase of $2.6 million or 0.4%, over the original Fiscal Year 2023-24 Adopted Budget of $726.0 million. This increase is attributed to the General Fund, which includes $283.6 million in expenditures, and makes up 39% of the budget. After the General Fund, largest expenditures are housed within the Zero Waste Fund ($59.5 mill ion), Grant Funds ($48.6 million), Sewer Fund ($32.6 million), Permit Service Center ($25.5 million), Library Tax ($24.6 million), Capital Improvement Fund ($23.0 million), Gas Tax/Street Improvement Fund ($19.4 million), Measure T1 ($18.1 million), IT Cost Allocation ($17.3 million) and the Parks Tax ($16.0 million). Together, these funding sources represent 39% of expenditures, which is the same proportion as the General Fund. Combined, the General Fund and the top ten funding sources identified above represent 78% of budgeted expenditures.

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While expenditures total $728.6 million, new revenue expected to be received to offset these costs is estimated at $639.6 million. General Fund revenues total $266.4 million according to the 2024 Mid-Biennial Update, which reflects an increase of $4.7 million, or 2%, over projected revenues included in the Fiscal Years 2022-23 and 2023-24 Adopted Budget. The City’s leading sources of revenue include property taxes, followed by business licenses, utility user taxes, sales and soda taxes, and other revenues, which includes transfers and interest earned on City’s investments.

Preliminary Five-Year Forecast

On November 16, 2023, the Budget and Finance Policy Committee was presented with a preliminary five-year forecast, showing a structural annual deficit in Fiscal Years 2023-24 through 2027-28. The following table shows the projected revenues and expenditures over the next five fiscal years for the City’s General Fund.

CITY OF BERKELEY
Preliminary Five-Year Forecast
Fiscal Years 2023-24 through 2027-28

2023-24 2024-25 2025-26 2026-27 2027-28
Beginning Fund Balance $65,156,400 $56,294,337 $32,248,907 $14,807,120 $883,971 Total Revenues 266,418,324 269,654,570 277,558,213 285,676,851 297,493,021 Total Expenditures 275,280,387 293,700,000 295,000,000 299,600,000 301,633,925 Annual Surplus/(Shortfall) (8,862,063) (24,045,430) (17,441,787) (13,923,149) (4,140,904) Projected Ending Balance 56,294,337 32,248,907 14,807,120 883,971 (3,256,933)

Source: City of Berkeley Annual Comprehensive Financial Reports

Given the decreasing level of precision to be expected in the later years of a multi -year forecast, the significance of the projections in the out years is not so much in terms of their absolute amounts, but rather in the relative size of the decrease or increase from the prior year.

This information should be used to provide a multi-year perspective to budgetary decision-making, rather than as a precise prediction of what will occur.

General Fund Reserves

Establishment of General Fund Reserve . On December 13, 2016, the City Council adopted a General Fund reserve policy, establishing a General Fund reserve (the “Reserve”), to prepare for the impact of economic cycles and catastrophic events and assure fluctuations in revenue do not impede the City’s ability to meet expenditure obligations. When revenues fail to meet the City’s normal operating requirements, or the need f or disbursements temporarily exceeds receipts, the Reserve, upon a 2/3 vote of the City Council, may be used in accordance with the standards set forth therein.

The Reserve is composed of two elements, a Stability Reserve and a Catastrophic Reserve:

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1) A Stability Reserve is maintained to mitigate loss of service delivery and financial risks associated with unexpected revenue shortfalls during a single fiscal year or during a prolonged recessionary period. The purpose of the Stability Reserve is to provide fiscal stability in response to unexpected downturns or revenue shortfalls, and not to serve as a funding source for new programs or projects.

2) A Catastrophic Reserve is maintained for the purpose of sustaining General Fund operations in the case of a public emergency, such as a natural disaster or other catastrophic event. The Catastrophic Reserve will be used to respond to extreme, onetime events, such as earthquakes, fires, floods, civil unrest, and terrorist attacks. The Catastrophic Reserve will not be accessed to meet operational shortfalls or to fund new programs or projects.

The Reserve is accounted for in the Unassigned fund balance of the City’s balance sheet.

Target Reserve Levels . 55% of the Reserve is allocated to the Stability Reserve and 45% to the Catastrophic Reserve.

The long-term goal for the Reserve is a minimum of 30% of the adopted General Fund revenues, to be achieved by 2026 -27 (“Long- Term Goal ”). Based on a risk assessment (according to best practices), to be updated at least every five years, the City Council may consider increasing or lowering the Reserve level.

As of July 1, 2024, the Stability Reserve is projected to have $29.79 million, and the Catastrophic Reserve is projected to have $18.75 million, which total 18.22% of adopted General Fund revenues, significantly below the long-term goal.

Replenishment of the General Fund Reserve . The City Manager will recommend a replenishment schedule for all monies proposed for appropriation from the Reserve. The replenishment schedule will be adopted simultaneous with the appropriation to withdraw Reserve funds or, if infeasible due to emergency circumstances, no more than three months from the date of the withdrawal appropriation. Repayment shall begin no more than five years from the date of withdrawal and be completed within 10 years from the date of withdrawal.

While staff envisions that, in most cases, repayment will start as soon as possible, the repayment guidelines are meant to reflect a commitment to maintain a sufficient Reserve, while also recognizing that a use of Reserve amounts may occur during an economic downturn, and it may be necessary to postpone repayment while the economy improves. In Fiscal Year 2022-23, the City repaid $3.8 million to the Stability Reserve, and $6.9 million is expected to be repaid in Fiscal Year 2023-24. In Fiscal Year 2022-23, the City repaid $3.2 million to the Catastrophic Reserve and $5.7 million is expected to be repaid in Fiscal Year 2023-24.

Unfunded Liability Obligations and Unfunded Infrastructure Needs

General. On February 23, 2023, the City Manager presented a biennial report of the City’s unfunded liability obligations and unfunded infrastructure needs (the “ Report”). The Report includes, among other things:

1. Employee and retiree benefit costs over a 10-year horizon

2. Costs for current active employees including:
a. total payroll costs for active employees during the current year;

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b. projected payroll costs for the same number of employees for the next 10 -year period.

3. A summary of all current City obligations including:
a. general obligation bonds;
b. certificates of participation;
c. loans;
d. all other current long-term obligations.

4. Summary of all capital assets and infrastructure including:
a. Appraisal of Public Buildings valued at $5 million or more b. Condition of Streets and Roads, projecting costs to bring streets and roads condition to an average Pavement Condition Index of 75 within 5 years. c. Sewers: updated asset management plan for public sewers including projected costs for succeeding 5 years and projected revenue from sewer fees for the succeeding 5 years.

Certain provisions of the Report, which is available on the City’s internet website but is not incorporated by reference herein, are described below. The link to the Report on the City’s internet website is the following: https://berkeleyca.gov/sites/default/files/legislative-body-meeting- attachments/ITEM%204%20SUPPLEMENTAL%20(UNFUNDED%20LIABILITIES).pdf. The information contained within the website may not be current and is not incorporated in this Official Statement by reference.

The Report concludes that maintaining a careful balance between cash on hand to fund daily operations and liquidity to cover unfunded liabilities is a key challenge for all governments, and reports that liabilities tied to benefits total $613.8 million (of which only 72.0% is funded), and the City’s unfunded infrastructure requires a total of $2.23 billion.

Unfunded Liabilities. Due to projected increases in expenses, primarily pension and medical expenses, the City is projecting a General Fund structural deficit.

The City provides retirement benefits to its employees through three plans in the California Public Employees’ Retirement System (“ CalPERS”). See “- Retirement Programs” below for additional information. The City has a significant pension liability that is anticipated to grow, increasing by more than $40 million over the next ten years, which will put a strain on resources and services.

In addition, the City’s retiree health plans are significantly underfunded, as detailed in the Report.

Unfunded Infrastructure Needs. The City has an extensive portfolio of capital assets and infrastructure, including 95 buildings, 254 miles of public sanitary mains and 130 miles of sewer laterals, 216 centerline miles (450 lane miles) of public streets, 52 parks, 2 pools, 3 camps and 42 facilities served by the City’s IT systems. In addition, Berkeley is a relatively older city, and faces related challenges with its aging infrastructure. Despite the passage of several local bond measures to support capital facilities, there are significant unfunded needs related to parks, pools, camps, waterfront property, streets, sidewalks, storm drain/watershed, sewer, transportation and buildings/facilities. As needed improvements continue to be deferred, operating and maintenance costs rise and rehabilitation and replacement costs increase substantially. The Report details available annual funding and unfunded needs for capital and major maintenance.

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As a result of the age of the City’s infrastructure and limited resources allocated to infrastructure, the projected costs of the City’s aging infrastructure needs are anticipated to reach more than $2.23 billion by Fiscal Year 2024-25.

The Report also highlights that the City is located on the east side of the San Francisco bay, and has waterfront property with docks, pilings, parking lots and streets that have reached the end of their useful life. The City’s mechanism for managing its waterfront revenues and expenditures (the “Marina Fund”) is projected to have insufficient funding due to decreasing revenues and increasing expenditures, a trend that could be aggravated by failure to maintain the marina infrastructure. The City has crea ted the Berkeley Marina Area Specific Plan to address an estimated $113 million in infrastructure repairs but has not identified any specific funding sources.

State Budget and its Impact on the City

Fiscal Year 2024-25 State Budget. On January 10, 2024 , the Governor released the proposed State budget for fiscal year 2024- 25 (the “Proposed 2024-25 State Budget”). The Proposed 2024-25 State Budget spending plan totals $ 291.5 billion with an estimated state budget shortfall of $37.9 billion, nearly $30 billion less than previously estimated by the State’s nonpartisan Legislative Analyst’s Office. The shortfall is largely the result of substantial declines in the stock market that drove down revenues in fiscal year 2021- 22 and delays in income tax collections. The 2024-25 State Budget Proposal maintains the State’s fiscal stability using a portion of money saved in the budget reserves.

Voters approved Proposition 1A in November 2004 to amend the State Constitution to place constraints on the State’s ability to divert certain specified revenues from local agencies to the State. Subsequently, in November 2010, voters approved Proposition 22 to amend the State Constitution to further constrain or eliminate the State’s ability to redirect revenues from local agencies. “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUES AND APPROPRIATIONS – Proposition 1A” and “– Proposition 22.”

Additional Information. Information about the Proposed 2024-25 State Budget and other State budgets is available at www.ebudget.ca.gov. An impartial analysis of the budget is posted by the Legislative Analyst Office at www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets, may be found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to in this paragraph is prepared by the respective State agency maintaining each website and not by the City. The City takes no responsibility for the continued accuracy of the Internet addresses or for the accuracy or timeliness of information posted there, and such information is not incorporated in this Official Statement by these references.

Ad Valorem Property Taxes

Tax Levies and Collections. Property taxes collected by the City decreased by $19.4 million, or 14.0%, to $119.0 million in fiscal year 2022-23 from $138.4 million in fiscal year 2021- 22, primarily as a result of increases/decreases in the following revenue sources:

• Property Transfer Tax revenue in fiscal year 2022 -23 was $22.0 million, $17.7 million or 44.6% less than the fiscal year 2021- 22 total of $39.7 million. This decline was primarily a result of a 45.6% decrease in the dollar value of property sales and a 31. 3% decrease in the number of property

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sales transactions. City staff projects a decline in Property Transfer Tax revenue of 26.0% in fiscal year 2023-24 from the fiscal year 2022-23 total, followed by growth of 12.6% in fiscal year 2024-25, 10.5% in 2025-26, and flat revenue for fiscal years 2026-27 and 2027-28, as the real estate market recovers after the Federal Reserve is expected to start lowering interest rates in the fourth quarter of fiscal year 2023-24.

• Measure P Property Tax revenue in fiscal year 2022 -23 was $9.7 million, $10.9 million or 52.9% less than the fiscal year 2021- 22 total of $20.6 million. This decline was primarily due to a 45.6% decrease in the dollar value of property sales, a 45.6% decrease in the number of property sales transactions, and significantly less property sales of $10 million or more in fiscal year 2022 -23 than there were in fiscal year 2021 -22. City staff expects growth in revenues from Measure P supplemental tax on high - value property transfers to recover in fiscal year 2024-25 through fiscal year 2027-28, as the Federal Reserve is expected to start lowering interest rates in the fourth quarter of fiscal year 2023-24 and stops (or reduces) selling of Mortgage-backed bonds from its balance sheet.

• An increase of $8.2 million in Secured Property Taxes, from $71.1 million in fiscal year 2021 -22 to $79.3 million in fiscal year 2022- 23, due to an increase in assessed value of 10.82% in the City. City staff expects fiscal year 2024-25 growth in assessed values to decline to 5.74%.

• Vehicle in-lieu taxes increased $1.7 million or 11.0% in fiscal year 2022-23 from $15.0 million in fiscal year 2021-22 to $16.7 million in fiscal year 2022- 23, due to an increase in assessed value of 10.82% in the City. City staff expects fiscal year 2024-25 growth in assessed values to decline 5.74%.

Taxes are levied for each fiscal year on taxable real and personal property that is situated in the City as of the preceding January 1. A supplemental roll is developed when property changes hands, which produces additional revenue.

A ten percent penalty attaches to any delinquent payment for secured roll taxes. In addition, property on the secured roll with respect to which taxes are delinquent becomes tax - defaulted. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus a redemption penalty to the time of redemption. If taxes are unpaid for a period of five years or more, the property is subject to auction sale by the County Tax Collector.

In the case of unsecured property taxes, a 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 1.5% per month begins to accrue beginning November 1 of the fiscal year, and a lien is recorded against the assessee. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on specific property of the taxpayer; (3) filing a certificate of delinquency for recording in the County Recorder’s office in order to obtain a lien on specified property of the taxpayer; and (4) seizure and sale of personal property, improvements or posses sory interests belonging or assessed to the assessee.

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The County levies (except for levies to support prior voter -approved indebtedness) and collects all property taxes for property falling within that county’s taxing boundaries. The City does not participate in the Teeter Plan.

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Other General Fund Revenues and Transfers

In addition to property taxes, the City has several other major tax and fee revenue sources, as described below. The following table summarizes the City’s actual audited general fund revenues and transfers from fiscal year 2019-20 through fiscal year 2022-23.

CITY OF BERKELEY

GENERAL FUND REVENUES AND TRANSFERS

Actual

Actual

Actual

Actual
Revenue Revenue Revenue Revenue
FY 2020 FY 2021 FY 2022 FY 2023
Real Property $63,192,678 $68,166,155 $70,657,482 $79,260,689 Unsecured Property 3,164,168 3,448,412 4,422,414 3,830,697 Supplemental Taxes 2,334,597 2,249,517 2,317,723 3,561,752 Property Transfer Tax 22,095,507 21,469,955 42,901,750 22,878,336 Property Transfer Tax-Measure P 9,512,603 10,919,576 20,591,313 10,199,580 Sales Tax 17,557,539 15,792,305 18,928,278 19,194,971
Soda Tax 1,331,313 953,069 1,025,800 1,162,310
Business License 20,863,685 17,809,332 20,324,937 21,854,193 Business License – Cannabis Recreation 1,300,887 1,712,641 1,250,792 997,572 Measure U1 5,597,359 4,818,740 4,913,872 5,844,564
Utility Users Tax 13,475,915 13,892,200 14,750,065 17,634,565 Hotel Tax 6,387,495 2,292,480 5,727,046 7,477,911
Vehicle In-Lieu 13,356,044 14,380,453 15,006,003 16,659,665 Parking Fines 3,900,595 3,571,391 4,765,819 5,875,858
Moving Violations 200,894 131,756 156,253 149,420
Interest 6,702,564 5,917,722 6,694,122 12,117,025
Ambulance Fees 4,996,193 3,081,204 3,833,730 5,143,120
Franchise Fees 1,839,102 1,726,470 1,720,056 1,822,528
Other Revenue 20,074,732 18,514,060 17,185,630 15,872,263 Transfers and IDC 5,386,188 21,180,762 29,445,571 23,605,162 TOTAL $223,364,309 $232,028,200 $286,618,657 $275,142,181

Source: City of Berkeley Budget Office. Revenues were recorded using the budget basis of accounting (i.e., Cash).

Sales and Use Tax. The sales tax is an excise tax imposed on retailers for the privilege of selling or leasing tangible personal property. The use tax is an excise tax imposed for the storage, use, or other consumption of tangible personal property purchased from any retailer. The total sales tax rate within the City is currently 10.25%. The proceeds of sales and uses taxes imposed within the City are distributed by the State to various agencies, with the City receiving

1.0% of the amount collected.

Collection of the sales and use tax is administered by the California Department of Tax and Fee Administration (the “ CDTFA”). This process was formerly administered by the State Board of Equalization. The Taxpayer Transparency and Fairness Act of 2017, which took effect July 1, 2017, restructured the State Board of Equalization and separated its functions among three separate entities: the State Board of Equalization, the CDTFA and the Office of Tax Appeals.

The State Board of Equalization will continue to perform the duties assigned to it by the state Constitution, while all other duties will be transferred to the newly established CDTFA and the Office of Tax Appeals. CDTFA will handle most of the taxes and fees previously collected by the State Board of Equalization, including sales and use tax. According to the CDTFA, it distributes quarterly tax revenues to local jurisdictions (like the City) using the following method:

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Using the prior year’s like quarterly tax allocation as a starting point, the CDTFA first eliminates nonrecurring transactions such as fund transfers, audit payments and refunds, and then adjusts for growth, in order to establish the estimated base amount.

The CDTFA disburses 90% of the base amount to each local jurisdiction in three monthly installments (advances) prior to the final computation of the quarter’s actual receipts. Ten percent is withheld as a reserve against unexpected occurrences that can affect tax collections (such as earthquakes, fire or other natural disaster) or distributions of revenue such as unusually large refunds or negative fund transfers. The first and second advances each represent 30% of the 90% distribution, while the third advance represents the remaining 40%. One advance payment is made each month, and the quarterly reconciliation payment (clean-up) is distributed in conjunction with the first advance for the subsequent quarter. Statements showing total collections, admin istrative costs, prior advances and the current advance are provided with each quarterly clean-up payment.

The CDTFA receives an administrative fee based on the cost of services provided by the Board to the City in administering the City’s sales tax, which is deducted from revenue generated by the sales and use tax before it is distributed to the City.

Sales tax revenues decreased approximately $54,000 or 0.3% to $19.92 million in fiscal year 2022-23 from $19.98 million in fiscal year 2021-22. The City currently projects that sales tax revenue will decrease by 1.1% in fiscal year 2023-24 and then increase approximately 3% in fiscal year 2024-25 through fiscal year 2026-27.

CITY OF BERKELEY

TAXABLE TRANSACTIONS
(Figures in Thousands)

2019 2020 2021 2022 2023
Retail and Food Services:

Apparel Stores $42,772 $20,385 $37,143 $43,166 $44,187
Gen. Merchandise Stores 21,434 16,902 19,066 22,498 19,762 Food Stores 155,025 169,569 144,467 115,170 115,398
Eating and Drinking Places 391,474 208,146 283,279 366,323 383,140 Home Furnishings and Appliances 66,188 45,479 87,133 59,435 51,568 Bldg. Materials, Farm Implements 101,937 113,116 141,811 152,845 149,126 Auto Dealers, Auto Supplies 119,679 94,927 114,276 135,123 109,251 Gas/Service Stations 94,217 57,950 87,759 110,009 99,486 Other Retail Stores 261,020 188,434 236,279 245,362 224,668 Total Retail and Food Services 1,263,746 914,910 1,151,213 1,249,931 1,196,586 All Other Outlets 372,108 315,081 341,988 431,788 401,687 TOTAL ALL OUTLETS $1,635,854 $1,229,990 $1,493,201 $1,681,719 $1,598,273

Source: State Department of Tax and Fee Administration.

Factors that have historically affected sales tax revenues include the overall economic growth of the Bay Area, competition from neighboring cities, the growth of specific industries within the City, the City’s business attraction and retention efforts, and catalog and Internet sales.

Utility Users Tax. The City imposes a 7.5% tax on users of gas, electricity and telephone, as well as cellular telephone services for billing addresses within the City. The tax is not applicable to State, County, or City agencies, or to insurance companies and banks. Some of the factors affecting this revenue stream include consumer demand for these utilities, legislative and regulatory action, rate changes, and the evolution of technology. Utility users taxes increased $2.6 million or 17.4% from $15 million in fiscal year 2021- 22 to $17.6 million in fiscal year 2022-

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23. The increase came primarily from the following: (1) Increases in the cost of natural gas to PG&E and the colder-than-normal temperatures, which increased energy bills; (2) Higher energy demands and tighter supplies on the West Coast, as customers used more natural gas for heating during cooler temperatures; and (3) PG&E received an 8% increase in electricity rates in January 2022 and another increase of 8.9% in March 2023. Utility users tax is expected to be flat from the fiscal year 2022-23 total through fiscal year 2026-27.

Business License Tax. The City requires all businesses within the City to be licensed and imposes a business license tax on all business locations and a new license registration fee on applicants for a new license. The annual tax is generally determined based on the type of business and the business’s gross receipts. The tax rate varies between $0.60 per $1,000 gross receipts for grocers, on the low end, and $50.00 per $1,000 gross receipts for adult cannabis sales on the high end. Most types of businesses are required to pay a minimum tax of at least $51 per year. The overall revenue from this tax is dependent on the number of license renewals each year and the growth of businesses and industries within the City and the Bay Area more generally. Business license taxes revenue increased $1.2 million or 5.3% from $23.4 million in fiscal year 2021 -22 to $24.6 million in fiscal year 2022 -23. The City projects 7.6% growth in business licenses taxes in fiscal year 2023-24 and 2% growth from fiscal year 2024-25 through fiscal year 2026-27.

Property Transfer Tax. The City’s transfer tax rate is 1.5% for properties with a consideration up to $1.8 million and 2.5% for transferred properties with a consideration over $1.5 million. The $1.5 million threshold will be adjusted annually to capture approximately the top 33% of such transfers based on transfers that occurred in the 12 months preceding Sep tember 1 of the preceding year. However, the threshold cannot be reduced below $1.5 million, meaning that the tax on properties transferred for $1.5 m illion or less would remain at 1.5%, notwithstanding any adjustment. The tax is due when the transfer is recorded with the County. Title companies collect the tax as part of the sale closing process and remit the funds to the County when sales or transfers are finalized. The County remits the amounts due monthly, and the amounts are credited to the general fund. A buyer of residential housing built before 1989 may voluntarily choose to reserve up to one-third of the transfer tax to perform seismic upgrades. Buyers typically have up to one year to complete the work and file for a rebate. Previously, title companies held the reserved amount in escrow until the work was completed, but since May 2007, the City has held the money in escrow accounts, with the interest going to the City.

Prior to fiscal year 2017 -18, it was the City Council’s policy that property transfer tax in excess of $10.5 million was treated as one -time revenue to be transferred to the Capital Improvement Fund for capital infrastructure needs, but that amount was increased to $12.5 million in fiscal year 2017-18 until fiscal year 2022-23; in fiscal year 2022-23, the City Council increased the baseline for fiscal year 2022 -23 and fiscal year 2023- 24 to $18 million, with a permanent adjustment to $16 million beginning in fiscal year 2024-25.

Parking Fines. The City issues and adjudicates citations and civil penalties for parking violations through its own administrative structure. It has a great degree of control over the administration of parking fines, although issuing agencies within the County try to standardize parking penalties to the extent possible. Revenue from parking fines is affected by the penalties imposed for violations, the number of employees issuing tickets, how many tickets employees are able to issue, and the number of working parking meters, among other factors. Currently, the City must remit an additional $12.50 per citation to the State/County for State and County construction funds, Maddy emergency medical fund, and DNA identification fund.

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Vehicle in Lieu Fees. Vehicle license fees (“VLF”) imposed for the operation of vehicles on state highways are collected by the State Department of Motor Vehicles in lieu of personal property taxes on vehicles. In connection with the offset of the VLF, the State Legislature authorized appropriations from the State General Fund to “backfill” the offset so that local governments, which receive all of the vehicle license fee revenues, would not experience any loss of revenues. The legislation that established the VLF offset program also provided that if there were insufficient State General Fund moneys to fully “backfill” the VLF offset, the percentage offset would be reduced proportionately (i.e., the license fee payable by drivers would be increased) to assure that local governments would not be underfunded.

As part of the 2004 Budget Act negotiations, an agreement was made between the State and local government officials under which the VLF rate was permanently reduced from 2% to

0.65%. In order to protect local governments, the reduction in VLF revenue to cities and counties from this rate change was replaced by an increase in the amount of property tax they receive.

Commencing in fiscal year 2004 -05, local governments began to receive their full share of replacement property taxes, and those replacement prop erty taxes now enjoy constitutional protection against certain transfers by the State because of the approval of Proposition 1A at the November 2004 election.

As a part of its fiscal year 2009 -10 budget, California increased the vehicle license fee from 0.65% to 1.15% for registration fees due on or after the May 19, 2009 special election. This provision expired on July 1, 2011. On July 1, 2011, vehicle license fees returned to 0.65%, and the City is unaware of any current State legislative efforts likely to increase these in fees in the future.

Vehicle in-lieu taxes increased $ 1.7 million or 11.0% in fiscal year 2022 -23 from $15.0 million in fiscal year 2021-22 to $16.7 million in fiscal year 2022-23. This was due to an increase in assessed value of 10.82% in the City.

Other Revenues. The City also collects additional general fund revenues from franchise fees, transient occupancy taxes, ambulance fees, a tax on sugar -sweetened beverages, and other more minor sources. Under the City’s cable and electric and gas franchise fee arrangements, the local cable provider pays an annual franchise fee of 5% of gross revenues, and the electricity and gas providers pay the greater of 2% of gross receipts attributable to miles of line operated or 0.5% of gross receipts. The transient occupancy tax, also known as the hotel tax, is a 12% tax on the room charge for rental of transient lodging, which was significantly reduced due to restrictions on travel and events due to COVID -19. The City also has an agreement with the County to be the e xclusive provider of all emergency ground ambulance services within the City; the specific ambulance fee depends on the type of service delivered and is billed to clients or their insurance companies. Finally, other more minor revenue sources include payments for moving violations, interest on existing funds, and other service fees.

Retirement Programs

PERS Plan Description . The City contributes to three plans in California Public Employees’ Retirement System (“PERS”). The first plan covers all of the City’s full-time and part- time benefited sworn uniformed fire employees and all chiefs (and is referred to as the Safety Fire Plan in this Official Statement). The second covers all of the City’s full-time and part-time benefited sworn uniformed police employees and all chiefs (and is referred to as the Safety Police Plan in this Official Statement). The third plan covers all remaining eligible City employees (and is referred to as the Miscellaneous Plan in this Official Statement). These plans are agent multiple-employer

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defined benefit pension plans administered by PERS, which acts as a common investment and administrative agent for participating public employers within the State of California.

PERS Plan Eligibility. For a more detailed discussion of the eligibility requirements for the City’s PERS retirement plans, see Appendix B, Note 12.

PERS Plan Contributions. The City is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the PERS Board of Administration (the “ Board of Administration”). For the measurement period ended June 30, 2022 (the measurement date), the average active employee contribution rate is 8.0% of annual pay for the Miscellaneous Plan and 9.0% of annual pay for the Safety Plan (Fire and Police), and the employer contribution rate is 32.479% of annual payroll for the Miscellaneous Plan, 48.235% of annual payroll for the Public Safety Fire Plan, and 66.606% of annual payroll for the Public Safety Police Plan. The contribution requirements of the plan members are established by State statute, and the employer contribution rates are established and may be amended by PERS.

Implementation of GASB Nos. 68. Commencing with fiscal year ended June 30, 2015, the City implemented the provisions of GASB Statement Nos. 68, which require certain new pension disclosures in the notes to its audited financial statements commencing with the audit for fiscal year 2014-15. Statement No. 68 generally requires the City to recognize its proportionate share of the unfunded pension obligation by recognizing a net pension liability measured as of a date (the measurement date) no earlier than the end of its prior fiscal year. As a result of the implementation of GASB Statement Nos. 68, the City reflected a restatement of its beginning net position as of July 1, 2014.

For a more detailed discussion of the eligibility requirements for the City’s retirement plans, see Appendix B, Note 12 for detailed information about the actuarial assumptions underlying the contributions. The City’s fiscal year 2022-23 contributions to the pension plans and the funded status of the pension plans are set forth below.

Fiscal Year
Ended
Total Pension
Liability
Plan
Fiduciary
Net Position
Net Pension
Liability
Plan
Fiduciary Net
Position as a
Percentage
of the Total
Pension
Liability
Covered
Employee
Payroll
Plan Net
Pension
Liability as a
Percentage
of Covered
Employee
Payroll
Contributions
Employer
PERS – Miscellaneous Plan
6/30/2022 $1,206,597,991 $858,710,502 $347,887,489 71.17% $106,589,987 326.38% $29,982,031

PERS – Public Safety Fire Plan
6/30/2022 $312,150,980 $224,038,873 $88,112,107 71.77% $18,875,240 466.81% $9,967,551

PERS – Public Safety Police Plan
6/30/2022 $492,597,755 $301,234,573 $191,363,182 61.15% $24,332,573 786.45% $17,791,362

Recent Actions by PERS. At its April 17, 2013, meeting, the Board of Administration approved a recommendation to change the PERS amortization and smoothing policies. Prior to this change, PERS employed an amortization and smoothing policy that spread investment returns over a 15 -year period with experience gains and losses paid for over a rolling 30 -year period. After this change, PERS will employ an amortization and smoothing policy that will pay for all gains and losses over a fixed 30-year period with the increases or decreases in the rate spread

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directly over a 5-year period. The new amortization and smoothing policy were used for the first time in the June 30, 2013, actuarial valuations in setting employer contribution rates for fiscal year 2015-16.

On February 18, 2014, the Board of Administration approved new demographic actuarial assumptions based on a 2013 study of recent experience. The largest impact, applying to all benefit groups, is a new 20 -year mortality projection reflecting longer life ex pectancies and that longevity will continue to increase. Because retirement benefits will be paid out for more years, the cost of those benefits will increase as a result. The Board of Administration also assumed earlier retirements for Police 3% at 50, Fire 3% at 55, and Miscellaneous 2.7% at 55 and 3% at 60, which will increase costs for those groups. As a result of these changes, rates will increase beginning in fiscal year 2016-17 (based on the June 30, 2014, valuation) with full impact in fiscal year 2020-21.

On November 18, 2015, the Board of Administration adopted a funding risk mitigation policy intended to incrementally lower its discount rate - its assumed rate of investment return - in years of good investment returns, help pay down the pension fund's unfunded liability, and provide greater predictability and less volatility in contribution rates for employers. The policy establishes a mechanism to reduce the discount rate by a minimum of 0.05 percentage points to a maximum of 0.25 percentage points in years when investment returns outperform the existing discount rate, currently 7.5%, by at least four percentage points. PERS staff modeling anticipates the policy will result in a lowering of the discount rate to 6.5% in about 21 years, improve funding levels gradually over time and cut risk in the pension system by lowering the volatility of investment returns. More information about the funding risk mitigation policy can be accessed through PERS’ web site at the following website address: https://www.calper s.ca.gov/page/newsroom/calpers- news/2015/adopts-funding-risk-mitigation-policy. The reference to this Internet website is provided for reference and convenience only. The information contained within the website may not be current, has not been reviewed by the City and is not incorporated in this Official Statement by reference.

On December 21, 2016, the Board of Administration voted to lower its discount rate from the current 7.5% to 7.0% over three years according to the following schedule.

Fiscal Year Discount Rate
2018-19 7.375%
2019-20 7.250
2020-21 7.000

For public agencies like the City, the new discount rate would take effect July 1, 2018.

Lowering the discount rate means employers that contract with PERS to administer their pension plans will see increases in their normal costs and unfunded actuarial liabilities. Active members hired after January 1, 2013, under the Public Employees' Pension Reform Act will also see their contribution rates rise. The three -year reduction of the disc ount rate will result in average employer rate increases of about 1 percent to 3 percent of normal cost as a percent of payroll for most miscellaneous retirement plans, and a 2 percent to 5 percent increase for most safety plans.

Additionally, many PERS employers will see a 30 to 40 percent increase in their current unfunded accrued liability payments. These payments are made to amortize unfunded liabilities over 20 years to bring the pension fund to a fully funded status over the long-term.

On November 15, 2021, the CalPERS Board selected a new asset allocation mix that will guide the fund’s investment portfolio for the next four years, while at the same time retaining the

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reduction of discount rate from 7.0% to 6.8%. Notable changes for employers include a decrease in median total employer contribution rates, from less than 1% in miscellaneous plans to a decrease of more than 2% in some safety plans. Contribution changes took effect in fiscal year 2023-24 for public agencies.

Dollar Contribution Based on Projected PERS Rate Increases . The City’s projected annual financial contributions as a result of the PERS rate changes for the next four years are shown in the table below, with dollar amounts shown in millions:

2021-2022 2022-2023 2023-2024
Projected
2024-25
Projected
Miscellaneous(1) $39.19 $34.92 $40.57 $56.88
Police 17.99 21.93 20.32 23.04
Fire 10.06 6.60 10.24 11.73
Total $67.24 $63.45 $71.13 $91.65

Berkeley Police Retirement Income Benefit Plan. Prior to December 22, 2012, the City maintained the Berkeley Police Retirement Income Benefit Plan (“ BPRIBP”), a single-employer defined benefit income plan, for its police retirees and surviving spouses. Effective September 19, 2012, police retired on or after this date are no longer covered by BPRIBP. The City replaced this plan with the “Retiree Health Premium Assistance Coverage Plan.”

The City’s fiscal year 2021-22 contribution to the BPRIBP and the funded status of the BPRIBP is set forth below.

Fiscal Year
Ended
Total Pension
Liability
Plan Fiduciary
Net Position
Plan Net
Pension
Liability
Plan
Fiduciary Net
Position as a
Percentage
of the Total
Pension
Liability
Covered
Payroll
Plan Net
Pension
Liability as a
Percentage
of Covered
Employee
Payroll
Contributions
Employer
6/30/2022 $62,943,710 $4,273,417 $58,670,293 6.79% $21,578,636* 271.89% $2,220,179 ______________
* Estimated.

For a more detailed discussion of the BPRIBP, see APPENDIX B to this Official Statement.

Peace Officers Research Association of California. Effective December 23, 2012, the City established a new sick leave program called Peace Officers Research Association of California (“PORAC”). If a sworn member of the Berkeley Police department has an accrued sick leave balance on December 23, 2012 , that exceeds 200 hours, one half of all those hours in excess of 200 shall be maintained in a separate account. The financial value of those hours shall be converted and deposited into the employee’s PORAC medi cal trust account over five successive years in equal installments commencing on January 1, 2013. The conversion was at the employee’s rate of pay on December 23, 2012. The City may accelerate the payment of hours to be converted. The remaining fifty percent of the sick leave balance in excess of 200 hours was credited into the employee’s separate “catastrophic/service time” bank no later than February 1, 2013, up to a maximum of 500 hours.

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The City’s contribution to PORAC for the fiscal year ending December 31, 2023, was $425,866.

Safety Members Pension Fund. In addition, the City maintains the Safety Members Pension Fund (“ SMPF”), a defined benefit plan for fire and police officers who retired prior to March 1973. In March 1973, all active fire and police officers were transferred from SMPF to PERS. The City pays the benefits to SMPF members on a pay-as-you-go basis, primarily through a Funding Agreement, purchased by the Berkeley Civic Improvement Corporation on behalf of the City in 1989. For the fiscal year ended June 30, 2023, the City’s contribution to SMPF was $318,877.

The funded status of the SMPF as of June 30, 2023, the most recent actuarial date, is set forth below:

Actuarial
Valuation
Date
Plan
Fiduciary Net
Position
Total Pension
Liability
Plan Net
Pension
Liability
Plan
Fiduciary Net
Position as a
Percentage
of the Total
Pension
Liability
Covered
Payroll
Plan Net
Pension
Liability as a
Percentage
of Covered
Employee
Payroll
6/30/2023 -- $845,616 $845,616 --% N/A N/A

For a more detailed discussion of the SMPF, see APPENDIX B of this Official Statement.

Post-Employment Health Benefits

The City offers certain post-employment health benefits to retirees. There are three plans:
(i) the City of Berkeley Fire Employees Retiree Health Plan (“ FRHF”), (ii) the City of Berkeley Miscellaneous Employees Retiree Health Plan (“ RHPAP”) and (iii) the Police Retiree Premium Assistance Plan (“PRPAP”).

The City has adopted Government Accounting Standards Board Statement 75 which requires governmental agencies to change their accounting for Other Post-Employment Benefits (“OPEB”) from pay-as-you-go to an accrual basis.

See Appendix B, Note 13 for information about the City’s OPEB liabilities.

City of Berkeley Fire Employees Retiree Health Plan. The FRFH is a single-employer defined benefit medical plan. To be eligible for benefits, sworn Fire employees must retire from the City on or after July 1, 1997, be vested in a PERS pension, and retire from the City on or after age 50. Benefits commence immediately upon retirement. Benefits are payable for the retiree’s lifetime and continue for his or her covered spouse’s/domestic partner’s lifetime. The amount the City contributes toward the Fire Employees Retiree Healt h Plan is 4.5% per year regardless of the amount of increase in the underlying premium rate. The establishment and amendments of benefit provisions are negotiated between the employee bargaining units and the City Labor Negotiating Team, and are approved by the City Manager and City Council. As of June 30, 2023, there were 131 active employees, 26 retirees deferred and 85 retirees receiving benefits.

The City’s targeted funding policy is equal to the service cost for active employees plus an amount to amortize unfunded liabilities over 30 years (rolling 30-year amortization) as a level percentage of payroll. The City strives to contribute the annual required contribution of the

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employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45.

For the FRFH, the City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB asset for fiscal year 2022-23 and the four preceding years were as follows:

Fiscal Year
Ended Annual OPEB Cost
Percentage of
Annual OPEB Cost
Contributed

Net OPEB
Liability
6/30/2019 $2,326,493 36% $19,633,312
6/30/2020 2,104,622 36 21,177,486
6/30/2021 2,575,970 35 23,873,248
6/30/2022 1,354,619 39 18,507,610
6/30/2023 3,659,767 36 22,908,062

The funded status of the FRFH as of June 30, 2023, the date of the most recent actuarial report, is set forth below:

Actuarial
Valuation
Date
Actuarial
Value of
Assets
Actuarial
Accrued
Liability (AAL)-
Unit Credit
Unfunded
Actuarial
Accrued
Liability-
UAAL
Funded
Ratio
Covered
Payroll
UAAL
as
Percentage
of covered
Payroll
7/1/2023 $12,665,380 $35,573,442 $22,908,062 35.6% $18,118,697 126.43%

City of Berkeley Miscellaneous Employees Retiree Health Premium Assistance Plan. The RHPAP is a single -employer defined benefit medical plan. It provides retiree health benefits to eligible retirees and his/her spouse or domestic partner. The establishment and amendments of benefit provisions are negotiated between the employee bargaining units and the City and are approved by the City Council.

Retirees who are at least age 50, with at least 8 years of service with the City at the time of separation from service are eligible to receive retiree health benefits commencing at age 55.

Benefits are payable for the retiree’s lifetime and continue for h is or her covered spouse’s/domestic partner’s lifetime. The City pays the monthly cost of the monthly premiums up to a participant’s applicable percentage of the base dollar amount and subject to annual 4.5% increases regardless of the amount of increase i n the underlying premium rate. As of June 30, 2023, there were 1,097 active employees.

The City’s targeted funding policy is equal to the normal cost for active employees plus an amount to amortize unfunded liabilities over 30 years as a level percentage of payrolls. The City is required to contribute the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. Any changes to the contribution requirements of the plan are negotiated by the bargaining units and City negotiating staff, and approved by the City Council.

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For the RHPAP, the City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal year 2022-23 and the four preceding years were as follows:

Fiscal Year
Ended
Annual
OPEB Cost
Percentage of
Annual OPEB Cost
Contributed
Net OPEB
Obligation
6/30/2019 $5,051,655 43.3% $37,219,746
6/30/2020 5,534,572 32.7 60,659,492
6/30/2021 4,871,995 42.9 41,895,470
6/30/2022 2,071,289 50.2 29,470,744
6/30/2023 6,017,367 52.3 29,845,739

The funded status of the RHPAP as of June 30, 2023, the most recent actuarial report, is set forth below:

Actuarial
Valuation
Date
Actuarial
Accrued
Liability (AAL)
Actuarial
Value of
Assets
Unfunded
Actuarial
Accrued
Liability-
UAAL
Funded
Ratio
Covered
Payroll
UAAL
as
Percentage
of covered
Payroll
7/1/2023 $62,589,364 $32,743,625 $29,845,739 52.3% $110,614,150 26.98%

Police Retiree Premium Assistance Plan. Effective September 19, 2012, the City replaced the “Berkeley Police Retirement Income Benefit Plan” with the “Retiree Health Premium Assistance Coverage Plan” for any police employees hired on or after that date, as well as any current employees who retir e on or after such date. Under the newly established retiree health premium assistance plan, benefits will be the paid by the City directly to the provider who is providing retiree health coverage to the retiree or his or her surviving spouse. The maximum amount will be equal in value to the City sponsored health plan.

In order to be eligible for the Retiree Health Premium Assistance Coverage a “Retiree” must meet all of the following criteria:

(a) A person who is vested in, and
(b) Has reached the age of 50, and
(c) Has retired from the City at age 50 or thereafter, and (d) Has applied for and is receiving a pension from at the time of retirement.

The maximum amount the City will contribute toward the payment of medical insurance premiums is based on the employee’s years of service as a sworn member of the Berkeley Police Department at time of retirement. The retiree must have at least 10 years of s ervice as a sworn member of the Berkeley Police Department to qualify for this benefit.

Years of Service City Percentage
10 to 14 25%
15 to 19 50
20 or more 100

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Beginning September 19, 2012, each month after the employee retires the City will pay the health care service provider an appropriate percentage based on years of service above an amount equal to $1,200 per month for two -party coverage for the retiree and a qualifying spouse/domestic partner or $600 per month for single party coverage. Upon death of either the retiree or the retiree’s spouse, the City will only pay the appropriate percentage of the single party rate to the provider on behalf of the surviving retiree or spouse/domestic partner. If there is no spouse/domestic partner at the time of retirement, the City shall only pay the single party rate.

The retiree and/or surviving spouse/domestic partner will be responsible for payment of the difference between the amount the City contributes toward payment of the premium and the actual premium cost. The funds for this difference will come from the retiree’s retirement account and the retiree must authorize such withdrawal of funds.

Beginning July 1, 2013 and effective each July 1 thereafter, the base rates the City contributes toward payment of the premium amount described in the preceding paragraph shall be increased by either the amount Kaiser increases the retiree medical premium for that year, or 6%, whichever is less. The retiree and/or surviving spouse/domestic partner shall pay the difference between the amount the City contributes toward payment of the premium and the actual premium cost. As of June 30, 2022, there were 158 active employees, 24 active retirees, and 17 retirees entitled to, but not yet receiving, benefits.

For the retiree health premium assistance plan, the City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB asset for fiscal year 2022-23 and the four preceding years were as follows:

Fiscal Year
Ended Annual OPEB Cost
Percentage of
Annual OPEB Cost
Contributed

Net OPEB
Liability
6/30/2019 $5,155,293 6.0% $46,252,565
6/30/2020 4,432,549 4.0 57,472,394
6/30/2021 5,076,625 5.0 49,355,501
6/30/2022 4,636,861 6.2 32,429,614
6/30/2023 5,245,557 5.8 35,423,408

The actuarial cost method used for determining the benefit obligations is the Projected Unit Credit Cost Method. Under this method, the actuarial present value of projected benefits is the value of benefits expected to be paid for current actives and retirees and is calculated based on the assumptions and census data described this report. The Actuarial Accrued Liability (AAL) is the actuarial present value of benefits attributed to employee service rendered prior to the valuation date. The AAL equals the p resent value of benefits multiplied by a fraction equal to service to data over service at expected retirement. The Normal Cost is the actuarial present value of benefits attributed to one year of service. This equals the present value of benefits divided by service at expected retirement. Since retirees are not accruing any more service, their normal cost is zero. In determining the Annual Required Contribution, the Unfunded AAL is amortized as a level percentage of payroll over 30 years.

As of July 1, 2023, the most recent actuarial valuation date, the plan was 5.8% funded.

The actuarial accrued liability for benefit was $37.6 million, and the actuarial value of assets was $2.2 million, resulting in an unfunded accrued liability of $ 35.4 million. The covered payroll (annual payroll of active employees covered by the plan) was approximately $ 21.6 million. The fair value of the assets was determined using market values as of the date of the actuarial report.

The schedule of funding progress, presented as required supplementary information following the

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notes to the financial statements, presents multi -year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Funded status of the plan as of June 30, 2023, the most recent actuarial valuation date is as follows:

Actuarial
Valuation
Date
Actuarial
Value of
Assets
Actuarial
Accrued
Liability (AAL)-
Unit Credit
Unfunded
Actuarial
Accrued
Liability-
UAAL
Funded
Ratio
Covered
Payroll
UAAL
as
Percentage
of covered
Payroll
7/1/2023 $2,182,190 $37,605,598 $35,423,408 5.8% $21,578,636 164.2%

Defined Contribution Plans

The City offers certain supplemental retirement and income plans to retirees. See Appendix B, Note 12 for information about the City’s defined contribution plans.

Labor Relations

As of May 1, 2024, the City employed approximately 1,655 full-time equivalent budgeted employees. There are six employee unions as shown below. In addition, the City employs approximately 132 unrepresented employees that include Executive Management, Confidential professional or Confidential Office support positions. The City has not experienced any work stoppages or strikes by its employees.

CITY OF BERKELEY
Labor Relations
Labor Organization Employees
Contract
Expiration
Date
Berkeley Fire Fighters Association/I.A.F.F. Local 1227 144 06/30/2026 Berkeley Police Association 148 06/30/2026
I. B. E. W. Local 1245 9 06/30/2025
Service Employees International Local 1021
Maintenance and Clerical Chapters
535 06/26/2024
Service Employees International Local 1021 Community
Services and Part-Time Recreation Leaders
Association Chapters
488 06/26/2024
Public Employees Local 1 199 06/26/2024
Unrepresented Employees 132 06/26/2024

Source: City of Berkeley.

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Risk Management

The City is exposed to various risks of loss related to torts; theft of, damage to, or restriction of assets; errors or omissions; injuries to employees; or acts of God.

The City is self -insured for liability claims below $350,000. The City is a member of the Bay Cities Joint Powers Insurance Authority (“BCJPIA”). The BCJPIA consists of 20 municipal or public agency members, all located within the metropolitan San Francisco Bay Area. The BCJPIA provides general liability, auto liability, and errors and omissions coverage between $350,000 and $1,000,000. The California Affiliated Risk Management Authority (“CARMA”) provides additional coverage to the BCJPIA and its member entities for claims in excess of $1,000,000, up to $29,000,000.

The City is self-insured for workers’ compensation. Payments are made to the Workers’ Compensation Self-Insurance Internal Service Fund by transfers from the City’s general fund and other funds of the City on a pay-as-you-go basis.

The City requires pre -employment physical examinations for high risk, high hazard employees as well as annual examination for all uniformed officers. As part of its workers’ compensation program, copies of all injured employee medical reports are monitored by a third - party agent to ensure that injured employees receive proper care.

At June 30, 2023, $6,303,833 and $39,825,000 have been accrued for public liability and workers’ compensation claims, respectively. These accruals represent estimates of amounts to ultimately be paid for reported claims and, upon past experience, recent claim settlement trends and other information. It is the City’s practice to obtain an actuarial study on an annual basis.

Although the amount of actual losses incurred through June 30, 2023 are dependent on future developments, based upon information from the administrators and others involved with the administration of the programs, the City’s management believes that the aggregate accrual is adequate to cover such losses.

City Debt Structure

Short-Term Debt. The City has issued Tax and Revenue Anticipation Notes (“TRANs”) in each recent year. The City’s TRANs are a general obligation of the City, payable from the City’s general fund and any other lawfully available moneys. The fiscal year 2023- 24 TRANs have an outstanding principal amount of $23,620,000 and mature on July 24, 2024.

General Fund Obligations. The City currently has outstanding long -term General Fund debt and lease obligations described below. The City has never defaulted on the payment of principal of or interest on any of its indebtedness.

Certificates of Participation . On June 2, 2021, Berkeley Joint Powers Financing Authority (the “ Authority”) executed and delivered certificates of participation in the aggregate principal amount of $3,975,000 (the “Certificates of Participation”). The City’s underlying rental obligation is a general fund obligation of the City. The bonds bear interest at rates between 2.00%-5.00%, and the final maturity date is October 1, 2039. As of April 1, 2024, the principal balance outstanding was $3,975,000.

Lease Revenue Bonds. In October 2012, Authority issued lease revenue bonds on behalf of the City in the aggregate principal amount of $27,260,000 to refund the

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Authority’s 1999 Lease Revenue Bonds and 2003 Certificates of Participation. The City’s underlying rental obligation is a general fund obligation of the City. The bonds bear interest at rates between 3.00%-5.00%, and the final maturity date is October 1, 2037. As of April 1, 2024, the principal balance outstanding was $13,375,000.

General Obligation Bonds . The City has previously issued general obligation and general obligation refunding bonds that are secured by ad valorem taxes levied and collected in the City.

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Employment

The unemployment rate in the Oakland-Hayward-Berkeley MD was 4.7% in March 2024, down from a revised 5.0% in February 2024, and above the year-ago estimate of 3.7%. This compares with an unadjusted unemployment rate of 5.3% for California and 3.9% for the nation during the same period. The unemployment rate was 4.6% in the County and 4.7% in Contra Costa County.

The table below list employment by industry group for Alameda and Contra Costa Counties for the years 2019 to 2023.

OAKLAND- HAYWARD-BERKELEY MD
(Alameda and Contra Costa Counties)
Annual Averages Civilian Labor Force, Employment and Unemployment, Employment by Industry
(March 2023 Benchmark)

2019 2020 2021 2022 2023
Civilian Labor Force (1) 1,403,400 1,362,300 1,352,300 1,382,300 1,376,700 Employment 1,360,500 1,239,100 1,268,700 1,333,200 1,320,300 Unemployment 42,900 123,200 83,600 49,100 56,400
Unemployment Rate 3.1% 9.0% 6.2% 3.6% 4.1%
Wage and Salary Employment: (2)
Agriculture 1,400 1,500 1,600 1,900 1,900
Mining and Logging 200 200 200 300 300
Construction 75,500 70,700 73,000 74,300 75,100
Manufacturing 101,000 98,700 105,200 111,000 111,900
Wholesale Trade 45,400 42,100 41,300 41,200 41,400
Retail Trade 111,800 101,100 105,300 105,200 105,600
Transportation, Warehousing, Utilities 43,700 45,200 48,600 54,100 54,400 Information 27,600 25,800 25,000 24,900 24,200
Finance and Insurance 37,200 35,900 34,700 34,200 32,300 Real Estate and Rental and Leasing 18,100 16,700 16,800 18,200 18,400 Professional and Business Services 193,200 184,800 189,900 195,800 189,500 Educational and Health Services 198,400 191,300 198,200 207,400 216,500 Leisure and Hospitality 121,000 84,700 91,700 103,900 112,100 Other Services 41,200 33,100 35,000 38,500 41,300
Federal Government 13,400 14,200 13,500 13,100 13,300
State Government 39,600 38,200 37,900 33,700 33,700
Local Government 121,800 113,500 111,900 116,200 118,000 Total, All Industries (3) 1,190,300 1,097,700 1,129,700 1,176,300 1,189,900

(1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike.
(3) Totals may not add due to rounding.

Source: State of California Employment Development Department.

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The following tables show the major employers in the City and the County.

CITY OF BERKELEY
Major Employers
2023

Employer
Number of
Employees
% of Total
Employment
University of California Berkeley 13,213 20.07%
Lawrence Berkeley National Laboratory 3,470 5.27
Sutter East Bay Medical Foundation/Hospitals 1,773 2.69 Berkeley Unified School District 1,710 2.60
City of Berkeley 1,602 2.43
Bayer Corporation 1,043 1.58
Kaiser Permanente Medical Group 944 1.43
Siemens Corporation/Healthcare Diagnostics, Inc. 679 1.03 Lifelong Medical Care 533 0.81
Berkeley Bowl Produce 523 0.79

Source: City of Berkeley, Annual Comprehensive Financial Report for the Fiscal Year Ended June 30, 2023.

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COUNTY OF ALAMEDA
Major Employers (Listed Alphabetically)
May 2024

Employer Name Location Industry
Alameda County Law Enforcement Oakland Government Offices-County Alameda County Sheriff's Dept San Leandro Government Offices-County Alameda County Sheriff's Ofc Oakland Sheriff
Alameda Health System Oakland Health Care Management
Alta Bates Summit Med Ctr Alta Berkeley Hospitals
BART PD Oakland Transit Lines
California State Univ East Bay Hayward Schools-Universities & Colleges Academic Cooper Vision Inc Pleasanton Optical Goods-Wholesale
Dell EMC Pleasanton Computer Storage Devices (mfrs)
East Bay Muni Utility Dist Oakland Water & Sewage Companies-Utility Kaiser Permanente Oakland Med Oakland Hospitals
Lawerence Berkeley Lab Berkeley Laboratories-Research & Development Lawrence Livermore Natl Lab Livermore University-College Dept/Facility/Office Peoplesoft Inc Pleasanton Computer Software-Manufacturers Ross Stores Inc Dublin Department Stores
Sanfrancisco Bayarea Rapid Oakland Transit Lines
Stanford Health Care-Vllycr Livermore Clinics
Transportation Dept-California Oakland Government Offices-State UCSF Benioff Children's Hosp Oakland Hospitals
University of CA Berkeley Berkeley Schools-Universities & Colleges Academic University of Ca-Berkeley Berkeley University-College Dept/Facility/Office University-Ca-Berkeley Dept Berkeley University-College Dept/Facility/Office Valley Care Health System Livermore Health Services
Washington Hospital Healthcare Fremont Health Care Management Western Digital Corp Fremont Computer Storage Devices (mfrs)

Source: State of California Employment Development Department, extracted from The America's Labor Market Information System (ALMIS) Employer Database, 2024 2nd Edition.

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Effective Buying Income

“Effective Buying Income” is defined as personal income less personal tax and nontax payments, a number often referred to as “disposable” or “after -tax” income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor’s income, rental income (which includes imputed rental income of owner -occupants of non- farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance).

Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as “disposable personal income.” The following table summarizes the total effective buying income for the City of Berkeley, the County of Alameda, the State and the United States for the period 2020 through 2024.

CITY OF BERKELEY AND COUNTY OF ALAMEDA
Effective Buying Income
As of January 1, 2020 through 2024

Year

Area
Total Effective
Buying Income
(000’s Omitted)
Median
Household
Effective Buying
Income

2020 Berkeley $5,843,576 $76,294
Alameda County 72,243,436 84,435
California 1,243,564,816 65,870
United States 9,487,165,436 55,303

2021 Berkeley $6,203,796 $79,437
Alameda County 77,794,202 88,389
California 1,290,894,604 67,956
United States 9,809,944,764 56,790

2022 Berkeley $6,646,946 $88,676
Alameda County 85,225,529 99,940
California 1,452,426,153 77,058
United States 11,208,582,541 64,448

2023 Berkeley $6,074,419 $88,720
Alameda County 80,766,211 98,721
California 1,461,799,662 77,175
United States 11,454,846,397 65,326

2024 Berkeley $6,251,098 $89,175
Alameda County 84,213,255 101,689
California 1,510,708,521 80,973
United States 11,987,185,826 67,876

Source: Claritas, LLC.

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Construction Activity

Provided below are the building permits and valuations for the City of Berkeley for calendar years 2018 through 2022. Annual figures for calendar year 2023 are not yet available.

CITY OF BERKELEY
Total Building Permit Valuations
(Valuations in Thousands)

2018 2019 2020 2021 2022
Permit Valuation
New Single-family $13,808.7 $9,666.3 $6,444.7 $13,533.1 $9,058.9 New Multi-family 24,506.9 7,513.6 12,643.5 53,032.6 12,373.6 Res. Alterations/Additions 80,130.0 40,596.9 26,204.9 47,099.2 28,834.2 Total Residential 118,445.6 57,776.8 45,293.1 113,664.9 50,266.7

New Commercial 18,732.1 10,816.3 25,867.1 15,167.2 5,577.0 New Industrial 0.0 0.0 0.0 0.0 0.0
New Other 3,236.6 4,718.7 272.0 1,760.3 3,501.9
Com. Alterations/Additions 52,522.6 12,885.4 23,290.5 65,213.8 13,158.1 Total Nonresidential 74,491.3 28,420.4 49,429.6 82,141.3 22,237.0

New Dwelling Units
Single Family 63 46 21 69 40
Multiple Family 129 42 117 286 72
TOTAL 192 88 138 355 112

Source: Construction Industry Research Board, Buildi ng

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APPENDIX B

THE CITY’S ANNUAL COMPREHENSIVE FINANCIAL REPORT
FOR YEAR ENDED JUNE 30, 2023

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APPENDIX C

FORM OF OPINION OF BOND COUNSEL

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APPENDIX D

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “ Disclosure Certificate”) is executed and delivered by the City of Berkeley (the “City”) in connection with the issuance by the City, of the $_________ City of Berkeley 2024-25 Tax and Revenue Anticipation Notes (the “Notes”). The Notes are being issued pursuant to a resolution adopted by the City Council of the City on June 25, 2024 (the “Resolution”). The City covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate . This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Notes and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2 - 12(b)(5).

Section 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Dissemination Agent” shall mean NHA Advisors, LLC, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation.

“Listed Events” shall mean any of the events listed in Section 3(a) of this Disclosure Certificate.

“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule.

“Participating Underwriter ” shall mean any of the original underwriters of the Notes required to comply with the Rule in connection with offering of the Notes.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

Section 3. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 3, the City shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Notes:

(1) Principal and interest payment delinquencies.

(2) Non-payment related defaults, if material.

(3) Unscheduled draws on debt service reserves reflecting financial difficulties.

(4) Unscheduled draws on credit enhancements reflecting financial difficulties.

(5) Substitution of credit or liquidity providers, or their failure to perform.

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(6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701- TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security.

(7) Modifications to rights of security holders, if material.

(8) Bond calls, if material, and tender offers.

(9) Defeasances.

(10) Release, substitution, or sale of property securing repayment of the securities, if material.

(11) Rating changes.

(12) Bankruptcy, insolvency, receivership or similar event of the City or other obligated person.

(13) The consummation of a merger, consolidation, or acquisition involving the City or an obligated person, or the sale of all or substantially all of the assets of the City or an obligated person (other than in the ordinary course of business), the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material.

(14) Appointment of a successor or additional trustee or the change of name of a trustee, if material.

(15) Incurrence of a financial obligation of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the obligated person, any of which affect security holders, if material.

(16) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the obligated person, any of which reflect financial difficulties.

(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Notes under the Resolution.

(c) The City acknowledges that the events described in subparagraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), and (a)(14) of this Section 3 contain the qualifier

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“if material.” The City shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that the City determines the event’s occurrence is material for purposes of U.S. federal securities law.

(d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction o ver substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authori ty having supervision or jurisdiction over substantially all of the assets or business of the City.

(e) For purposes of Section 3(a)(15) and (16), “financial obligation” means a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term financial obligation shall not include municipal securities as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with the Rule.

Section 4. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Notes. If such termination occurs prior to the final maturity of the Notes, the City shall give notice of such termination in the same manner as for a Listed Event under Section 3(b).

Section 5. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent.

The initial Dissemination Agent shall be NHA Advisors, LLC.

Section 6. Amendment; Waiver . Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) if the amendment or waiver relates to the provisions of Section 3(a) it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obl igated person with respect to the Notes, or type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Notes, after taking into account any a mendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the Notes, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Notes.

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Section 7. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event.

Section 8. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate any holder or beneficial owner of the Notes may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.

Section 9. Duties, Immunities and Liabilities of Dissemination Agent . The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys ’ fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Notes.

Section 10. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Notes and shall create no rights in any other person or entity.

Date: _______, 2024

CITY OF BERKELEY

By
City Manager

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APPENDIX E

DTC AND THE BOOK-ENTRY ONLY SYSTEM

The following description of the Depository Trust Company (“ DTC”), the procedures and record keeping with respect to beneficial ownership interests in the Notes, payment of principal, interest and other payments on the Notes to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Notes and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.

Neither the issuer of the Notes (the “Issuer”) nor the trustee, fiscal agent or paying agent appointed with respect to the Notes (the “ Agent”) take any responsibility for the information contained in this Appendix.

No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Notes, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Notes, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Notes, or that they will so do on a timely basis, or tha t DTC, DTC Participants or DTC Indir ect Participants will act in the manner described in this Appendix. The current " Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC.

1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the securities (the “Securities”). The Securities will be issued as fully -registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount , and an additional certificate will be issued with respect to any remaining principal amount of such issue.

2. DTC, the world’s largest securities depository, is a limited -purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“ Direct Participants ”) deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates.

Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust

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companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation (“ DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is al so available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust comp anies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC’s records. The ownership interest of each actual purchaser of each Security (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details o f the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.

4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’s records reflect only the ident ity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subjec t to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

7. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC’s MMI

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Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

8. Redemption proceeds, distributions, and interest payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from Issuer or Agent on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accou nts of cus tomers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

9. DTC may discontinue providing its services as securities depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

10. Issuer may decide to discontinue use of the system of book -entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.

11. The information in this section concerning DTC and DTC’s book- entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.

Kate Harrison
Councilmember, District 4
2180 Milvia Street, Berkeley, CA 94704 ● Tel: (510) 981-7140 ● TDD: (510) 981-6903 ● Fax: (510) 644-1174 E-Mail: [email protected]

ACTION CALENDAR
January 16, 2024
To: Honorable Mayor and Members of the City Council
From: Councilmember Harrison
Subject: Adopt an Ordinance Adding Chapter 12.75 to the Berkeley Municipal Code to Establish Protections Relating to Horses Held, Owned, Used, Exhibited, or Otherwise Kept for Racing or Other Sport, Entertainment or Profit

RECOMMENDATION
Adopt an Ordinance Adding Chapter 12.75 to the Berkeley Municipal Code to Establish Protections Relating to Horses Held, Owned, Used, Exhibited, or Otherwise Kept for Racing or Other Sport, Entertainment or Profit.

POLICY COMMITTEE RECOMMENDATION
On November 13, 2023, the Health, Life Enrichment, Equity, and Community Committee adopted the following action: M/S/C (Hahn/Humbert) to send the item to Council with a qualified positive recommendation to approve the Ordinance with substantial edits and as may be necessary for legal and administrative purposes. Vote:

All Ayes.

CURRENT SITUATION, EFFECTS, AND RATIONALE FOR RECOMMENDATION Golden Gate Fields is one of the last remaining tracks in the Bay Area and has wide- reaching economic and institutional power. Unfortunately, Golden Gate Fields (GGF), spanning both Berkeley and Albany, remains a disturbing display of sanctioned animal abuse in our City. So far in 2023 alone, 16 horses have died at its facility.1 The horses at GGF have succumbed to a range of causes of death including broken legs, abdominal issues, head injuries, sepsis, and neurological problems. Many fatalities in the horseracing industry are euthanizations after horses suffer non-fatal injuries, cutting their lives unnaturally short. When CBS Bay Area reported on the most recent horse death at GGF in May of this year it cited the fact that “domesticated horses live into their 30s, but the average age of active racehorses is [only] three to five years old”.2 Some 1 This is a 100% increase since this ordinance was introduced in June of 2023. 2 Bay City News Service. “Injured Horse Euthanized at Golden Gate Fields; 8th Horse to Die at Track in 2023.” CBS News, 22 May 2023, www.cbsnews.com/sanfrancisco/news/injured-horse-euthanized-at- golden-gate-fields-8th-horse-to-die-at-track-in-2023/.

Adopt an Ordinance Adding Chapter 12.75 to the Berkeley Municipal Code to Establish Protections Relating to Horses Held, Owned, Used, Exhibited, or Otherwise Kept for Racing or Other Sport, Entertainment, or Profit

ACTION CALENDAR
January 16, 2024
data, however, shows that domesticated horses can live until their mid 40s if they have access to healthy living conditions.3
As horse deaths continue to rise at the horse racing tracks within City limits, it is overdue that the community ensure the well-being and safety of racehorses. Half of Golden Gate Fields deaths happen on the Berkeley side of the facilities. As a charter city, Berkeley has the authority to establish regulations and the jurisdiction to protect and promote the public health, safety and welfare by establishing safeguards for horses as long as they do not conflict with or duplicate state and federal law. It is in the public interest to adopt an ordinance prohibiting inhumane or abusive treatment of horses held, owned, used, exhibited or otherwise kept for sport, entertainment or profit within the City limits.

BACKGROUND
In just the last three months, two nationally recognized racetracks have shut down because of the increasing number of horse deaths at their tracks. Churchill Downs, home to the Kentucky Derby, is suspending racing at its primary location following an investigation by the Kentucky Horse Racing Commission4 after twelve horses died in two months. Just one month before Churchill Downs halted racing, a trainer was barred from participating in any further events at Churchill Downs or related tracks after two of his horses suddenly collapsed. At GGF, three horses have died under the same trainer this year, but Golden Gate Fields remains business as usual.

Baltimore’s Laurel Racetrack also suspended horse racing indefinitely. In 2023, 13 horses died at Laurel Racetrack in 2023 and the two most recent euthanizations occurred after racing injuries.

Of the physical problems that lead to regular stable deaths, the three most common causes are (1) colic, (2) laminitis, and (3) pleuropneumonia, all of which are worsened by excessive confinement. According to Dr. Nathaniel White, Professor of Surgery at Marion DuPont Scott Equine Medical Center, one of the three primary situations that present a higher-than-normal risk factor for colic in horses is being confined to a stall for more than 12 hours per day.5 VCA Veterinary Hospitals reports that “severe colic pain can cause a horse to roll and throw itself about in an uncontrolled and dangerous manner.6 In extreme cases, the confined horse can violently lunge its body or head into 3 University of California, Davis. "Humane Disposition of Horse Carcasses." Center for Equine Health, https://ceh.vetmed.ucdavis.edu/sites/g/files/dgvnsk4536/files/local_resources/pdfs/pubs-HR24-3-bkm- sec.pdf.
4 Fuente, Homero De la, and Zoe Sottile. “Churchill Downs to Suspend All Racing Operations to Further Evaluate Safety Measures amid Increase in Horse Deaths.” CNN, 2 June 2023, www.cnn.com/2023/06/02/sport/churchill-downs-suspension-horse-deaths/index.html. 5 Dr. Nathaniel A. White II DVM, MS. “Prevalence, Demographics, and Risk Factors for Colic.” Presented at: AAPE Focus on Colic, Quebec City, Quebec, 2005.
6 Colic in Horses, vcahospitals.com/know-your-pet/colic-in-horses. Accessed 20 June 2023. See also, Jennifer Rice, DVM. “Colic in Horses.” PetMD, 27 Apr. 2022, www.petmd.com/horse/conditions/digestive/c_hr_equine_colic.

Adopt an Ordinance Adding Chapter 12.75 to the Berkeley Municipal Code to Establish Protections Relating to Horses Held, Owned, Used, Exhibited, or Otherwise Kept for Racing or Other Sport, Entertainment, or Profit

ACTION CALENDAR
January 16, 2024
a wall or other solid object…the horse might also ‘throw itself’ to the ground.”7 Horses likely will incur serious self-injury during these explosive episodes, leading to the severe injury and blunt force trauma that cause many of the stable deaths.

In contrast, providing a turnout in which a horse can graze helps reduces the chance of colic, reduces stress and stable vices/behavioral issues, and reduces the chance of respiratory system illness among other benefits.8
Beyond the severe physical problems that stabling causes, are the severe psychological problems. When a horse's special, dietary, and social needs are thwarted, so-called stereotypies, or repetitive behaviors that do not have an apparent goal or function, occur. In horses, the classic stereotypies are including cribbing, wind-sucking, bobbing, weaving, pacing, stall-circling, digging, kicking, bucking, spinning, headshaking, or self- mutilation.9 Through these repetitive activities, endorphins are released which reinforce the behavior as a habit. These are the same symptoms of deep psychological distress commonly seen in other animals in captivity, such as circus elephants and bears.

According to Dr. Nicholas Dodman, Animal Behaviorist and Professor Emeritus at Tufts University:
"[t]he longer horses are confined per day the more stall vices/stereotypies they will exhibit.

Racehorses are the prime example of that with long periods of confinement (up to 23 hours per day), so they exhibit an unusually high prevalence of stereotypies. The suffering can be described by referencing the suffering of people in solitary confinement. A recently released man who had spent years in solitary said he sometimes felt anxiety, paranoia, panic, hallucinations etc. The only way he could help suppress the dysphoria was to walk back and forth in his cell until the line he walked was soaked in his sweat. That's what equine stall walkers do - walk endlessly in circles (or in the case of weavers, walk to and fro)."10
Confining a 1200-pound animal to a 12x12 stall is akin to confining an elephant to a box car or a killer whale to a swimming pool. Equine veterinarian, Dr. Kraig Kulikowski, compared this to locking a child in a 4x4 closet for 23 hours a day, abuse punishable by law.11 The United Nations deems solitary confinement as “cruel and unusual punishment.” Prison reserves solitary confinement for the most violent criminal as the worst punishment.

Our office has edited the ordinance to be in accordance with the recommended edits from the November 13 HLEEC Committee Meeting.
7 Id.
8 “Turnout Areas.” All Horse Care, allhorsecare.weebly.com/turnout-areas.html. Accessed 20 June 2023. 9 Fernanda C. Camargo. University of Kentucky College of Agriculture, Stereotypic Behavior In ..., www2.ca.uky.edu/agcomm/pubs/ASC/ASC212/ASC212.pdf. Accessed 20 June 2023. 10 Sue McDonnell. Equine Self-Mutilation, 28 Feb. 2019, thehorse.com/16597/equine-self-mutilation/. 11 Battuello, Patrick. “Equine Vet: ‘What Impact Would 23 1/2 Hours of Standing in a Closet Have on the Mental Health of a Child?’” Horseracing Wrongs, 6 Aug. 2019, horseracingwrongs.org/2019/08/06/equine-vet-what-impact-would-23-1-2-hours-of-standing-in-a- closet-have-on-the-mental-health-of-a-child/.

Adopt an Ordinance Adding Chapter 12.75 to the Berkeley Municipal Code to Establish Protections Relating to Horses Held, Owned, Used, Exhibited, or Otherwise Kept for Racing or Other Sport, Entertainment, or Profit

ACTION CALENDAR
January 16, 2024
 Changed the term racehorse to horse to encompass a wider breadth of animals  Included a definitions section to specify the meanings of: “Full turnout,” “Horse,” and “Overwork”
 Included all grammar revisions
 Deleted the felony stipulation under the “Penalties” section  Changed the enforcement role of the City Manager to only be responsible for enforcing provisions under section 12.75.030 C
 Deleted the language around regulating all animal abuse to protect from state and federal preemption and duplication.
 Deleted “mental and physical abuse” to just say, “abuse”  To ensure the penalties do not unjustly do legal harm to low-wage workers, who may also be subject to unhealthy work and housing conditions. The Ordinance penalizes the owner of the horse and/or the facility where the violation occurred, not the stable-hands, jockeys, or trainers.

Ordinance Overview
This proposed ordinance:

1. Makes it illegal to confine a horse to a stable for more than 10 hours per day and;

2. Requires every horse access to a full turnout with access to a minimum of 1,000 square feet of pasture, where the horse can freely roam, unrestricted and untethered.

3. Prohibits manual, electrical, mechanical, or other devices, implements, instruments or any method or modality that can cause injury, pain, suffering, overwork, and death, except as otherwise authorized by state or federal law.

This legislation is designed to govern only those areas not already directly covered by State and Federal laws. It specifically focuses on a limited set of conditions to supplement the existing regulatory framework.

Enforcement of the ordinance would be carried out by City officials, including police officers and the City’s Animal control officers. The City Attorney is also empowered to conduct inquiries or investigate complaints of violations of this Ordinance, and may seek injunctive relief in the courts or otherwise. Private parties may bring a private action for injunctive relief, penalties, or both, to prevent or remedy a violation of this Ordinance after the prospective plaintiff has (1) provided the City and the prospective defendant at least 30 days prior written notice of the alleged violation; and (2) the City has failed to initiate enforcement proceedings, or after initiation, has failed to diligently prosecute. In any action prosecuted under this Ordinance a court may award attorney’s fees to a prevailing party.

FISCAL IMPACTS OF RECOMMENDATION
Staff time will be necessary for implementation and enforcement.

Adopt an Ordinance Adding Chapter 12.75 to the Berkeley Municipal Code to Establish Protections Relating to Horses Held, Owned, Used, Exhibited, or Otherwise Kept for Racing or Other Sport, Entertainment, or Profit

ACTION CALENDAR
January 16, 2024

ENVIRONMENTAL SUSTAINABILITY
Horse breeding is extremely resource (including food, water, and medicine) and environmentally intensive. The senseless waste of precious animal life currently associated with horse racing also results in needless waste of limited and precious environmental resources.

CONTACT PERSON
Councilmember Kate Harrison, (510) 981-7140

ATTACHMENTS

1. Ordinance Adding Chapter 12.75 to the Berkeley Municipal Code to Establish Protections Relating to Horses Held, Owned, Used, Exhibited, or Otherwise Kept for Racing or Other Sport, Entertainment or Profit

1 ORDINANCE NO. –N.S.

ADDING CHAPTER 12.75 TO THE BERKELEY MUNICIPAL CODE

TO ESTABLISH PROTECTIONS RELATING TO HORSES HELD, OWNED, USED,

EXHIBITED OR OTHERWISE KEPT FOR RACING OR OTHER SPORT,

ENTERTAINMENT OR PROFIT
BE IT ORDAINED by the Council of the City of Berkeley as follows:

Section 1. That Chapter 12.75 of the Berkeley Municipal Code is added to read as follows:

Chapter 12.75

HORSE PROTECTION POLICY
Sections:

12.75.010 Findings and Purpose

12.75.020 Horse Protection Policy

12.75.030 Enforcement, Private Right of Action

12.75.040 Penalties

12.75.050 Severability

12.75.060 Effective Date

12.75.010 Findings and Purpose.

The Council of the City of Berkeley finds and declares as follows:

A. Article XI, section 7 of the California Constitution recognizes the police power of cities to “make and enforce within [their] limits, all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.”
B. The home rule provision of the California Constitution authorizes a charter city to exercise plenary authority over municipal affairs, free from any constraint imposed by the general law and subject only to constitutional limitations.

C. The City of Berkeley, as a Charter City, has authority to make and enforce all ordinances and regulations in respect to municipal affairs.

D. California provides laws and regulations for the licensing and associated operations of horse racing tracks, which preempt the City’s authority to impose laws and regulations that conflict with such state laws and regulations or intrude into the state’s regulatory scheme.

E. The humane protection and care for horses is a matter of local concern essential to the public health, safety and general welfare of Berkeley residents and is a proper

2 subject of regulation by the City acting pursuant to its police powers separate and apart from issues of licensing and racetrack operations preempted by the state or federal government. To the extent that state and federal laws and regulations implicate the health and safety of horses, those provisions are limited in scope and overly narrow, necessitating additional safeguards adopted pursuant to the City of Berkeley’s police power.

F. According to the American Association of Equine Practitioners, as pasture provides additional health benefits to horses, allowing them to move and exercise and regular pasture turnout should be part of a horse’s daily routine.

G. The UC Davis Center for Equine Health indicates that horses should not be “- confine[d] … to a stall unless absolutely necessary for medical reasons.” The UC Davis Center for Equine Health defines “Abuse and Cruelty” to include “use of excessive restraint such as tethering or confining movement for long periods of time” and/or “failure to provide adequate feed, water, care or protection.” H. The City of Berkeley desires, within its jurisdiction and authority, to establish regulations that protect health, safety, and welfare by prohibiting abusive treatment of horses held, owned, used, exhibited or otherwise kept for sport, entertainment or profit within its jurisdiction and authority.

I. This Ordinance aims to protect and promote public health, safety and welfare by establishing safeguards, protections and assurances for horses held, owned, used, exhibited or otherwise kept for sport, entertainment or profit within the City’s jurisdiction and authority and, to the fullest extent feasible and consistent with federal, state and local law, to prevent and deter infliction of any and all abuse, overwork, and injury and death.

12.75.020 Definitions
A. “Full turnout” means the practice of giving a horse unfettered access to a dedicated paddock, pasture, or other safe and fully fenced outdoor space in which it can roam freely, graze, and socialize with other horses.

B. “Horse” has the same meaning as in California Code of Regulations Title 4 Part 1420(g), i.e. “horse” means an equine and includes a stallion, gelding, mare, colt, filly or ridgling and includes mule, jack, jenny, ginnet, and hinney.

C. “Overwork” means to push a horse uncomfortably past its physical capacity such that it becomes exhausted, overheated, or otherwise distressed. Indica of overwork can include but are not limited to a strained or slowing gait, a lolling tongue, strained breathing, a slowing pace, decreased responsiveness to aids, and reduced coordination.

12.75.030 Horse Protection Policy

3 A. Except as otherwise authorized by state or federal law, it shall be unlawful to use on any horse, manual, electrical, mechanical, or other devices, implements, instruments, or any method or modality that can cause injury, pain, suffering, overwork, and death.

B. It shall be unlawful to confine a horse to a stable for more than 10 hours per day.

C. During the remaining hours of the day, it shall be required to provide every horse with a full turnout with access to a minimum of 1,000 square feet per horse of pasture where the horses can freely roam, unrestricted and untethered. Where a facility houses more than one horse, pasture shall be shared amongst all horses at the facility via one contiguous shared pasture equal to 1,000 square feet or greater per horse.

12.75.040 Enforcement, Private Right of Action
A. City officials shall have the power and authority to enforce the provisions of

12.75.030 C and perform all duties imposed by, or as reasonably necessary to implement, the provisions of this Section.

B. The City Attorney may conduct inquiries or investigate complaints of violations of this Ordinance. The City Attorney may seek injunctive relief, penalties, or both, or any other type of relief, in the courts or otherwise to enforce the provisions of this Ordinance. In any action prosecuted under this subdivision, the court may award reasonable attorneys’ fees to the City.

C. Any resident of the City may bring a private action for injunctive relief, penalties, or both, to prevent or remedy a violation of this Ordinance. No action may be brought under this Subsection C. unless and until the prospective plaintiff has provided the City and the prospective defendant at least 30 days prior written notice of the alleged violation. In any action prosecuted under this subdivision, the court may award reasonable attorneys’ fees to any prevailing party.

D. Nothing in this chapter shall be interpreted as authorizing a right of action against the City.

12.75.050 Penalties
Any violation of this Chapter shall be deemed a violation by the owner of the horse and/or the facility where the violation occurred. Agents or employees of the owner of the horse or the facility where the violation occurred, such as but not limited to stable- hands, jockeys, or trainers, shall not be deemed to have violated this Chapter. A violation of this Chapter is a misdemeanor punishable by imprisonment for a period of not less than 30 days and not exceeding six months or a fine of not less than $1,000 per animal, per violation, per day. Any subsequent violation of this Chapter by the same actor is a misdemeanor punishable by imprisonment for a period of not less than 60

4 days and not exceeding six months or a fine of not less than $1,000 per animal, per violation, per day.

12.75.060 Severability
If any section, subsection, paragraph, or word of this Ordinance, or any application thereof to any person or circumstance, either on its face or as applied, is held to be invalid, the invalidity of such provision shall not affect the other sections, subsections, paragraphs, sentences or words of this act, and the applications thereof; and to that end the sections, subsections, paragraphs, sentences, and words of this act shall be deemed to be severable. The City Council of the City of Berkeley hereby declares that it would have passed this Ordinance and each and every section, subsection, sentence, clause, phrase, and word not declared invalid without regard to whether any other portion of this Ordinance or application would be subsequently declared invalid.

12.75.080 Effective Date
This Ordinance shall become effective immediately for immediate preservation of the public peace, health or safety, containing a declaration of the facts constituting the urgency and is passed by a two-thirds vote of the City Council. Otherwise, this ordinance shall become effective 30-days after its final passage.

Section 2. Copies of this Ordinance shall be posted for two days prior to adoption in the display case located near the walkway in front of the Maudelle Shirek Building, 2134 Martin Luther King Jr. Way. Within 15 days of adoption, copies of this Ordinance shall be filed at each branch of the Berkeley Public Library and the title shall be published in a newspaper of general circulation.

Office of the City Manager
2180 Milvia Street, Berkeley, CA 94704 ● Tel: (510) 981-7000 ● TDD: (510) 981-6903 ● Fax: (510) 981-7099 E-mail: [email protected] Website: http://www.CityofBerkeley.info/Manager

ACTION CALENDAR
June 25, 2024
To: Honorable Mayor and Members of the City Council
From: Dee Williams-Ridley, City Manager
Submitted by: Henry Oyekanmi, Director, Finance
Subject: Accept the Risk Analysis for Long-Term Debt (Bonding Capacity) Report provided by Government Finance Officers Association

RECOMMENDATION
Accept the report titled ‘Risk-Based Analysis and Stress Test of Long-Term Debt Affordability’ as provided by the Government Finance Officers Association (GFOA). This report is based on their research and development of a risk-modeling tool to address issuing long-term debt related to City of Berkeley Vision 2050.

POLICY COMMITTEE RECOMMENDATION
No final action was taken by the Budget & Finance Committee. Item is automatically returning to the Council agenda pursuant to the time limit for items referred to policy committees.

FISCAL IMPACTS OF RECOMMENDATION
There are no fiscal impacts of accepting the report

CURRENT SITUATION AND ITS EFFECTS
The Risk-Based Analysis and Stress Test of Long-Term Debt Affordability (Bonding Capacity) report is a Strategic Plan Priority Project, advancing our goal to:
 Provide an efficient and financially-healthy City government The City engaged GFOA to conduct this analysis of the City’s bonding capacity through their risk-modeling approach. This analysis will support the City’s later development of a thirty-year borrowing plan, which will enable the City to replace its aging infrastructure assets, maintain its General Obligation Bond rating at AA+ at S & P Global and Aa1 at Moody’s, and keep the bond property tax rate at an affordable level (which was .0540% at June 30, 2020). The GFOA’s risk model and report look at a comprehensive financial analysis with particular focus on options to maintain the City’s debt affordability within the framework of the City’s huge unfunded pensions and other post-employment benefits (OPEB) and overall City operations.

Risk Analysis and Stress Test for Long-Term Debt Issuance ACTION CALENDAR June 25, 2024
The study and report are intended to help develop recommendations for a combination of infrastructure-focused revenue measures slated for November 2022 and beyond.

The context provided for GFOA to build the risk model and draft the subsequent report was framed through initially providing these items to GFOA:

1. Vision 2050

2. Unfunded Liabilities Report

3. Capital Improvement Plan in the most recent biennial budget and five-year planning horizon

4. Annual Comprehensive Financial Reports (ACFR)

5. GO Bonds, Revenue Bonds, and Certificates of Participation Debt Repayment Schedules

6. Current Bond Authority and Outstanding Amounts (GO Bonds for the past 20 years as of 7/12/21)

7. City’s Debt Policy

8. S and P Global Ratings Letter Re: GO Bonds

9. S and P Global Ratings Letter Re: Lease Revenue Bonds

10.Analysis of City’s Debt and Contingent Liability Profile

11.GO Rating Report – April 2021

12.GO Rating Report – February 2020
The GFOA report details these and additional factors that GFOA researched and incorporated into their construction of the risk model and their drafting of the final report.

BACKGROUND
The City has an extensive portfolio of capital assets and infrastructure, including 95 public buildings; 254 miles of public sanitary sewer mains and 130 miles of public sewer laterals; 52 parks, two pools; three camps; and 42 different facilities served by the City’s IT systems. Maintaining these assets is costly and requires significant resources and constant attention. As an older city, 50% of Berkeley’s $837 million of capital assets have exceeded their useful life.

The City’s FY 2021 Capital Plan called for spending of $57 million/year on capital and maintenance needs. Even at this increased level of funding, Berkeley’s infrastructure will deteriorate faster than it is being repaired and replaced, and construction cost escalation at four (4) percent/year will significantly increase replacement costs.

To modernize these old physical structures with resilient, durable, and climate-smart infrastructure will require substantial new investments. To adequately address the $882 million in unfunded infrastructure liabilities, the City needs to double its annual capital spending over the next decade to $80 million/year. Capital expenditures are typically funded through a combination of debt financing (pay-as-you-use) and cash (pay-as-you- go). Paying in cash avoids the cost of interest, but requires the City to accumulate sufficient cash to fund the project, while construction costs escalate. Using debt to finance

Risk Analysis and Stress Test for Long-Term Debt Issuance ACTION CALENDAR June 25, 2024
capital projects incurs interest expense but allows the project to start earlier, thereby avoiding escalation costs.

The City has an infrastructure system that has allowed it to thrive for over 100 years.

Now, the City wants to incorporate new technologies and be able to adapt to meet environmental trends so that the infrastructure systems can continue to support the City for another 100 years. The risk analysis report shows the potential impact of multiple factors on the City’s capacity to issue debt during the next thirty years.

ENVIRONMENTAL SUSTAINABILITY AND CLIMATE IMPACTS
There are no identifiable effects or opportunities associates with this item.

RATIONALE FOR RECOMMENDATION
The City administered Request for Proposals #21-11459-C for consulting services to determine the City’s bonding capacity. The RFP was published twice with neither publication generating responses from the market. In the course of staff researching why no responses were received, staff met with GFOA. GFOA provided their relatively new risk-modeling approach to the bonding capacity topic. Thus, it was determined, since a traditional RFP was not generating market response, that it would be advantageous to contract with GFOA for their services to research and develop the risk-model for City of Berkeley to evaluate its capacity for issuance of long-term debt.

ALTERNATIVE ACTIONS CONSIDERED
Not conducting the study

CONTACT PERSON
Henry Oyekanmi, Director, Finance, 981-7326
Attachments:
1: Report: Risk-Based Analysis and Stress Test of Long-Term Debt Affordability (from GFOA, 2022)

Risk Analysis for Long-Term Debt
(Bonding Capacity) Report
Budget and Finance Policy Committee
14 September 2023

O V E R V I E W
2 ▪ Council received report on 4/26/22: “Risk-Based Analysis and Stress Test of Long-Term Debt Affordability”
▪ Report produced by GFOA based on research and
development of a risk-modeling tool to address issuing long- term debt related to City of Berkeley Vision 2050
▪ Report referred to Budget and Finance Policy Committee

S T A T U S U P D A T E
3 Recommended Item Status
Consideration of reserves policies
for operational funds other than the
General Fund
Ongoing. CMO working with GFOA on a risk-based
probability model to assess General Fund reserves.

The outcome of this model will be used to help
establish reserve policies for other citywide funds.

Draft policies will be presented to the Budget and
Finance Policy Committee and then Council for
adoption once completed.

Potential reduction of the maximum
indebtedness rate from 15% of
assessed property value down to 4-
8% range
Completed. Council adoption of revisions to Debt
Management and Disclosure Policy on 6/27/23
changed debt capacity from 15% to 6%. Revised
language: “The City is subject to debt capacity limit for its general obligation bonds: 6% of assessed value”.

S T A T U S U P D A T E
4 Recommended Item Status
A new policy to not incur indebtedness when
interest rates go above 5% or a different specific
threshold
Ongoing. This scope is under review,
especially with the current interest rate of
the Federal Reserve Board and markets.

Tools for increased transparency for taxpayers Ongoing. CMO researching cloud-based budgeting software and other tools to
increase transparency.

Updated report and discussion of pension and
healthcare costs
Completed. Council received Unfunded
Liability Obligations and Unfunded
Infrastructure Needs report; held a special
meeting on 5/23/23 on pension and
retiree healthcare costs.

Refer the full Report to the Budget & Finance
Committee for consideration
Discussion of item on 9/14/23.

Office of the City Manager
2180 Milvia Street, Berkeley, CA 94704 ● Tel: (510) 981-7000 ● TDD: (510) 981-6903 ● Fax: (510) 981-7099 E-Mail: [email protected] Website: http://www.CityofBerkeley.info/Manager

Date: April 25, 2023
To: Budget & Finance Policy Committee
From: Dee Williams-Ridley, City Manager
Submitted by: Sharon Friedrichsen, Budget Manager
Henry Oyekanmi, Finance Director

Subject: Risk Analysis for Long-Term Debt (Bonding Capacity) Report

RECOMMENDATION
Receive a status update on recommendations and analysis related to the Risk Analysis for Long-Term Debt (Bonding Capacity) Report and provide direction to staff.

BACKGROUND
On April 26, 2022, the City Council considered accepting a report titled ‘Risk-Based Analysis and Stress Test of Long-Term Debt Affordability’ as provided by the Government Finance Officers Association (GFOA). Upon receiving the report, City Council referred this item to the City Manager and Budget & Finance Policy Committee to return to Council with recommendations or analysis on as many of the following items as possible by October 2022, if feasible. The purpose of this action item is to receive an update on the status of these items.

1. Consideration of reserves policies for operational funds other than the General Fund

Status: The City Manager’s Office is working with the GFOA on a risk-based probability model to assess the appropriate level of General Fund reserves. The outcome of this model will be used to help establish reserve policies for other citywide funds. An internal working group comprised of the City Manager’s Office, Finance, Planning, PRW and Public Works has been formed to develop reserve policies for enterprise funds. The draft policies will be presented to the Budget and Finance Policy Committee and then Council for adoption once completed.

2. Potential reduction of the maximum indebtedness rate from 15% of assessed property value down to 4-8% range

Status: The analysis is currently being conducted and completion is targeted for the June 27, 2023 Council date in conjunction with the statutory Annual GAAN Limit and Investment policy changes.

Risk Analysis for Long-Term Debt (Bonding Capacity) Report April 25, 2023

3. A new policy to not incur indebtedness when interest rates go above 5% or a different specific threshold

Status: This scope is also being reviewed especially with the current interest rate regime of the Federal Reserve Board and the markets. The target of completion is June 27, 2023.

4. Tools for increased transparency for taxpayers

Status: The City Manager’s Office has begun research on cloud-based budget and performance management software systems that would allow a more interactive interface and transparency regarding the City’s budget. However, additional time is needed to continue to explore these systems as well as other tools for increased transparency.

5. Updated report and discussion of pension and healthcare costs

Status: The Unfunded Liability Obligations and Unfunded Infrastructure Needs report, which includes a discussion on pension and other-post employment benefits, including retiree healthcare costs, was placed on the April 11, 2023 Council agenda. The item is being rescheduled for a future meeting date.

6. Refer the full Report to the Budget & Finance Committee for consideration

Status: The report has been submitted to the Committee for consideration.

ENVIRONMENTAL SUSTAINABILITY AND CLIMATE IMPACTS
There are no identifiable environmental effects or opportunities associated with receiving an update on the bonding capacity report.

CONTACT PERSON
Sharon Friedrichsen, Budget Manager, City Manager’s Office, 981-7000 Henry Oyekanmi, Finance Director, 981-7200

A Risk-Based Analysis and Stress Test of Long-
Term Debt Affordability for the City of Berkeley,
California

April 2022

Produced by:

The Government Finance Officers Association

Table of Contents
Section 1 – Introduction................................................................................................................................ 3 Section 2 – Defining What is “Affordable” Debt ........................................................................................... 5 Section 3 – Key Financial Indicators and Assumptions ................................................................................. 6 Section 4 – Results of the Analysis and Recommendations ....................................................................... 15 Section 5 – Conclusion and Summary ......................................................................................................... 23 Appendix 1 – Limitations of GFOA’s Analysis .............................................................................................. 25

Section 1 – Introduction
Long-term debt is an important tool for municipal governments to invest in long -term assets that serve their community. The City of Berkeley, California (City) is considering seeking authorization from its voters on a large amount of long -term debt, perhaps up to $600 million, to support the City of Berkeley ’s infrastructure needs included in its Vision 2050 plan. The debt would be used to fund assets like streets , public buildings, and more. This would be the largest amount of debt the City has sought to authorize in at least the last 20 years.1 Therefore, the City has, prudently, decided to analyze the long- term affordability of this debt and has engaged the Government Finance Officers Association (GFOA) to perform this analysis.

GFOA is a non -profit association of more than 21,000 state and local government finance professionals and elected officials from across the United States and Canada. A key part of GFOA’s mission is to promote best practices in public finance, including analyzing important financial risks like the affordability of long- term debt. GFOA’s approach to risk analysis is distinctive because we use the same basic methods used by insurance compani es and climate scientists to evaluate risk. We use computer simulation to build hundreds, if not thousands, of scenarios of how the City’s financial situation could play out over 30 years.

Each scenario changes important variables that influence how afford able the City’s debt might be. For example, each scenario features a different interest rate environment. The variation in these variables is governed by parameters we set, where the parameters keep the variation within the realm of possibility.

To continue our interest rate example, we gathered data on the rate of change in bond interest rates since 1970. This information was used to create the parameters for the interest rate environments generated for each scenario. We then see how often the Ci ty’s debt remains affordable over those thousands of scenarios. If the debt is shown to be affordable under a high proportion of those scenarios, then that suggests there is a good chance that the debt will ultimately be affordable in the real world. Conve rsely, if the debt is not affordable under a high portion of the scenarios that suggests the debt is unlikely to be affordable in the real world. This computer simulation is built in Microsoft Excel using open standards for the data.
2 We’ll refer to this computer simulation as the GFOA “Risk Model”. The Risk Model is completely available to the City to use as it sees fit, including the ability to adjust many of the assumptions utilized for the simulations.

The rest of this report is divided into the following sections:
• Defining What is “Affordable” Debt. This section describes our rationale for using a typical bond ratings analysis as the basis for determining what is “affordable” for the City government. • Key Financial Indicators and Assumptions. This section examines the key indicators of debt affordability that are taken into consideration by bond ratings companies and our method of approximating how the indicators suggest debt affordability in our simulation of the City government’s future.

1 History of the City’s bond issuances compiled with the help of the City Clerk. 2 Visit probabilitymanagement.org for more information on the standards we use.

• Results of the Analysis and Recommendations. In this section, we will address the findings from our analysis, including recommendations to help the City retain its credit rating.

Section 2 – Defining What is “Affordable” Debt
The definition of what is “affordable” debt is at the foundation of this analysis.

The first step to defining what is affordable is defining the type of debt the City is considering. The City is considering “general obligation (GO) debt”. This debt is paid for by a dedicated propert y tax levy. Thus, the City does not have to pay for this debt out of its existing revenue streams. This means that taking on more general obligation debt will not have a direct impact on the City’s operating budget. There is indirect impact – for example, perhaps the higher tax bills faced by taxpayers would cause them to vote against future tax measures intended to support the operating budget . Or, maybe residents or businesses feel the impact of higher taxes in their businesses or personal finances and de cide to move. These are important considerations, but are outside the scope of this analysis, which is focused on the direct impacts to City government. That said, the financial indicators we will examine do include measures of personal income and the size of the tax base relative to the size of the population, which do provide some insight into affordability to taxpayers. It is also worth remembering that, according to California law, debt like the City is considering must be approved by two -thirds of voters in an election. If approval is not obtained, the debt cannot be issued. Thus, taxpayers evaluate the affordability of the proposed debt themselves by choosing to approve it or not. However, affordability to the taxpayers might not be that simple. We’ll have more to say on this topic later in the report.

The impact of general obligation debt on the City government’s finances is to add to the City’s total debt burden. Generally, the more debt a City takes on the less attractive its debt becomes to investors, all else being equal.
3 This is because, in theory, the more debt a City has, the less likely it is that it will be able to pay it all back. This is important because if the City’s debt becomes too unattractive, it will need to offer higher interest rates to investors. That would make it more expensive to borrow and, thus, more expensive for the City to make future investments in long -term assets. Thus, we will define debt affordability as the extent to which issuing more debt in support of any City Council program might cause the City’s debt to cross a threshold point where the City has to offer a higher interest rate to attract investors.

Threshold points where higher interest rates must be offered are known as bond ratings. There are three major agencies that issue bond ratings: Moody’s Investors Service, Standard and Poor’s, and Fitch Ratings.

Each rating agency has its own approach, but there are broad similarities between all three. For purposes of this analysis, we will focus on Moody’s approach . This is because Moody’s method is : A) well documented; and B) makes use of quantitative financial information to help standardize the approach to issuing ratings. This means we can collect the same financial information Moody’s would collect and evaluate it in a similar, albeit much simplified, manner. By doing this, our Risk Model was able to essentially duplicate the City’s current rating, which is “Aa”, according to Moody’s. Aa is the second best rating on Moody’s scale (which is similar to the scales used by the other rating agencies). The complete scale is shown in the accompanying table . The reader should note that rating agencies also make finer grained distinctions within the rating tiers. For example, technically, the City’s rating is “Aa1”, which

3 Municipal governments might issue more debt, but their tax base and revenues might also continue to grow. In this case, all else has not remained equal so the debt of that municipality may not become less attractive.

indicates the City is a strong Aa or at the upper end of what is considered Aa. An Aa2 would be in the middle and Aa3 would be considered a weak Aa. For the majority of this report we will not refer to these finer grained distinctions. This is, first, in the interest of simplicity. Using just the ratings scale showing in our accompanying table, the reader will be required to track six different categories of ratings. Multiplying the number of categories by three might make this analysis much more difficult to follow. Second, we do not have access to reliable historical data on how big a difference these finer distinctions would make on the interest rate the C ity could obtain for its bonds. We have data back to 1970 for the differences between the tiers shown in our table. Therefore, most the analysis will take place at the level of these six tiers. Occasionally, though, we will refer to the finer distinctions (e.g., Aa1 vs. Aa2 vs. Aa3) to discuss how the City’s credit rating could change in response to different conditions.

If the City’s debt were to be downgraded to an “A” we would expect the City to have to pay a higher interest rate on future debt. How much more would depend on the interest rate environment at the time.

Historically, the difference between the interest rate of Aa and A has ranged from 1.05 t o 0.08 percentages points, with an average of 0.26 percentage points. If, for example, a $100 million 30-year bond sold at

2.26% interest rather than 2.00% interest, this would translate to $ 5 million more in total interest cost over the life of the bond.

To evaluate the affordability of the City of Berkeley ’s borrowing plan including its Vision 2050 debt issuance plan we can do the following:

1. Update the key financial indicators used within the Moody’s rating system to reflect what the indicators would look like with the additional debt over the 30 -year analysis period covered by our Risk Model.

2. Use computer simulation to vary key variables that impact the financial indicators over the 30 - year analysis period. We’ll describe what these variables are and the assumptions our analysis makes in the next section.

Section 3 – Key Financial Indicators and Assumptions
The purpose of this section is to summarize the key financial indicators used to help frame bond ratings and to describe key assumptions we have made with respect to future values of the important variables that go into the analysis. Our analysis considers the next 30 years, so we had to make assumptions about how key variables would behave. Before we delve into these topics, we’d like to bring five important points to the attention of the reader:

1. The amount of debt the City takes on is not the only, or even primary, factor that determines bond ratings. Bond ratings take into account a number of factors besides debt. Therefore, our analysis include other factors that impact bond ratings, such as pensions, fund balance and tax base, along with debt.

2. Bond ratings are intended, primarily, to help investors decide how risky it is to invest in a municipality’s debt. Though many of the factors bond ratings take into account are reflective of Moody’s Rating Scale
The best-> Aaa
Aa
A
Baa
Ba
The worst-> B or below

the general financial health of a municipality, the ratings are not a perfect measure of financial health. This is because ratings are intended to judge the ability of the City t o pay back its bondholders and nothing more. This is a limited perspective on financial health.4

3. Bond ratings method are not a purely mechanical exercise where a given value for the financial indicators leads to a perfectly predictable bond rating. For ex ample, Moody’s rating method includes “notching factors”, which are essentially the wiggle room to adjust a municipality’s rating up or down, based on local circumstances and the judgment of bond rating analysts. Nevertheless, given that our approximation of the financial indicators that Moody’s uses did produce the City’s current rating in our Risk Model, we can assume that the financial indicator s will produce useful insights into what the City’s rating might be under different circumstances.

4. Our analysis is based largely on the future looking a lot like the past in many important respects.

For example, we will see that the size of the City’s tax base is regarded as a big strength by the Moody’s evaluation method. We will assume it will continue to be. Of course, it is plausible that that a large natural disaster, like an earthquake, could severely damage property stock in Berkeley to the point where the tax base is seriously impaired and is no longer the strength it once was.

These kinds of extreme scenarios (e.g., natural catastrophes) are not within the scope of our analysis. This is not to say such scenarios are not important. In fact, GFOA analyzes the impact of catastrophic scenarios on municipal financial health on a regular basis. However, given the scope for this project we focused on the key financial indicators of the City’s financial health that are described in the following pages and not on catastrophe events. The Risk Model is not intended as a perfect representation of reality. It has been said “all models are wrong, but some are useful”.

We would suggest that focusing on the trajectory of key financial indicators given the decisions that City makes is a useful perspective on the affordability of its debt plan.

5. Readers who are not inte rested in the details of the Moody’s methods and the assumptions we made about the future of the City’s finances are invited to skip the rest of this section and go directly to the next section for our findings and recommendations.

The rest of this section will delve into key financial indicators that are salient to bond ratings and which underlies how we are defining “debt affordability” for this study.

The key financial indicators Moody’s considers are described by what Moody’s calls its “scorecard”.

Moody’s has four broad factors for its bond rating scorecard and a number of sub-factors, which are shown in Exhibit 3.1.
5 We will summarize each immediately following. With respect to the overview provided by Exhibit 3.1, the reader should note the factor weightings. We see that measures of the City’s debt constitute only 10% of the total scorecard. Thus, the City’s plan to issue more debt, by itself, can only have a marginal impact on the score. The City’s actions with respect to its financial position, in whole, will be what really matters for debt affordability.

4 A comprehensive approach can be found in GFOA’s Financial Foundations for Thriving Communities. 5 Our primary source on Moody’s me thods is “US Local Government General Obligation Debt” dated January 26, 2021, published by Moody’s Investors Service.

Exhibit 3.1 – Moody’s Scorecard Factors and Weights (for Local Governments)

Economy / Tax Base
The tax base ultimately determines if a city can pay back its debt. There are three sub-factors considered:

Tax-base size: The size of the property tax base is where a municipality draws its revenue from. Currently, full value of the property in the City’s tax base is almost double what is necessary to receive the highest possible score on Moody’s scorecard. We did not find a reason to think that a radical decline in the value of property in the tax base was a probable risk. Of course, events like the 2008 recession and bursting of the housing bubble can cause a temporary decline. These kinds of variations are captured in the Risk Model. The Risk Model assumes that tax base will grow (and occasionally shrink) at rate that is broadly consistent with historical patterns, but the Risk Model does not assume a constant rate of growth. For example, the Risk Model simulates market pullbacks like the Great Recession (and worse). However, we did not find a reason to think that a dramatic, long-term decline in the City’s property values was a high- probability risk. The Risk Model does provide the user with the ability to easily change growth rate assumptions in order to see the effect of more optimistic or pessimistic outlooks.

Full-value per capita: This indicator adds in population size to the size of the tax base. The per resident property wealth shows the availability of tax-generating resources relative to the users of public services.

This measure is almost 1/3 above what is necessary to receive the highest score on Moody’s scorecard.

We did not find reason to believe that the City’s population would outpace the growth in property values to the point where it would risk the City falling below the Moody’s threshold for the best score. In fact, a long-term forecast sourced from Association of Bay Area Governments (ABAG) shows the City’s population forecasted to grow just over 1% per year over the next 30 years. This growth does not seem to be so great that it puts a strain on City finances and, thus, pose a risk to the City’s bond ratings.

Median Family Income: A community with high-income taxpayers may have greater ability to cover the cost of debt. The City is almost exactly in the middle of the two threshold values that bound the second highest score on Moody’s scale. Presumably, the large number of college students in Berkeley exert downward pressure on thi s measure. That said, we did not uncover a high probability risk that the City would fall out of the second-highest category over the next 30 years.

Finances
This factor considers a local government’s cushion against the unexpected, the City’s ability to m eet existing financial obligations, and its flexibility to adjust to new ones. There are four sub -factors considered:

Fund Balance: Fund balance describes the net financial resources available to a municipality in the short term. It is essentially the “rainy day fund” or “self -insurance” to react to unplanned, unavoidable costs (like natural disasters). More fund balance would presumably reduce the risk of a local government failing to repay debt because of a natural disaster or other catastrophe. For the C ity, this measure is currently almost 2/3 above what is necessary to receive the highest score on Moody’s scorecard (Aaa). That said, fund balance is not nearly as stable a quantity as the economic forces we reviewed above. For example, in the years 2007 to 2013 the City’s annually available reserves were less than half of what they’ve been in the last few years. In fact, the City would have been in the Aa, rather than Aaa, equivalent tier for six of the last 15 years (though not too far below the A aa tier, at least). This means that we shouldn’t take for granted that the City will continue to maintain reserves high enough to receive Moody’s highest scores for the entire 30-year analysis period. The Risk Model assumes the City has a chance of falling out of the Aaa equivalent tier for fund balance. That chance is determined by the City’s historical experience. Over the last 15 years the City was below the Aaa threshold six times. So, the Risk Model assumes a six in 15 chance (or two in five chance) per year that the City falls below the Aaa tier.

Five-Year Dollar Change in Fund Balance as % of Revenues: The reason for this measure is much the same as stated above, except this takes longer -term perspective on fund balance. Fund balance can change fairly rapidly, year to year, compared to some of the other indicators in the Moody’s scorecard. So, this measure checks to see if fund balance is growing or shrinking and by how much. Currently, the City is just above the threshold required for the highest score. However, this is an example of a measure that is highly relevant to the interest of bondholders, but not as well aligned with the interests of the people who live in Berkeley. From the perspective of bondholders, it would not be a bad thing if the City continued to build its fund balance indefinitely. That continues to reduce the risk of a default. However, from the citizens’ perspective there is a clear upper limit on the amount of fund balance a local government should hold. At some point the opportunity cost (in terms of higher taxes or foregone services) is not worth the benefit the public receives from the City having a larger fund balance. Thus, given that the City already , by Moody’s own standards, has a large fund balance, it is questionable whether the City would continue to grow the fund balance in the future at the same rate it has in the past. Thus, it seems unlikely the City would continue to achieve the highest score under the Moody’s rating system. However, that said, Moody’s documentation does imply that local governments with a strong fund balance might be given consideration for maintaining that fund balance rather than continuing to grow it - Moody’s might adjust ratings upwards to reward maintaining stability of a high level of fund balance. This means that the City

may not enjoy the top -rated scores it had gotten in the past on this measure, but if it maintains a high level of fund balance, it might only drop to the second highest score. The Risk Model gives the user the option to choose the growth rate, from maintaining a rate of growth equivalent to Aaa to remaining flat (equivalent to an A rating). For the purposes of this report, we chose to make this indicator equivalent to an Aa rating. The rationale is that the City probably can’t keep historic levels of growth indefinitely, but the high amount of fund balance the City usually carries would, hopefully, be enough to avoid falling down to an A rating.

Cash Balance: Cash is a similar measure to fund balance – but focuses on “money in the bank”, whereas fund balance can include some non-liquid resources. For the City, this measure is currently almost three times above what is necessary to receive the highest score on Moody’s scorecard. At the City, cash balances and fund balance levels tend to mirror each other. So, just as the City did not have nearly the same level of fund balance in the past as it does today, it did not have the same level of cash either. Thus, like fund balance, this means that we shouldn’t take for granted that the City will continue to maintain cash high enough to receive Moody’s highest scores for the entire 30-year analysis period. That said, given that cash appears to be so far above what Moody’s is looking for that it would take much more extraordinary circumstances for the City’s cash to fall below Aaa equivalence. The Risk Model assumes that the City has a 2 in 15 chance of falling to the Aa tier, each year. This chance is smaller than fund balances falling to the Aa tier. The rationale is the City’s cash amounts are very high above the Aaa threshold, so would have a long way to fall to reach Aa territory.

Five-Year Dollar Change in Cash Balance as % of Revenues: The rationale and issues related to this measure are much the same as discussed above. Cash is a more liquid resource for dealing with unplanned, unavoidable expenditures and this measure shows the rate and direction of growth. The City is currently well above the amount required for Moody’s highest score, but, again, the same rate of growth probably cannot keep up indefinitely. Like fund balance, though, it seems possible that Moody’s might not penalize the City for mere stability in its amounts of cash on hand, if the amounts on hand were kept high. The Risk Model uses identical assumptions for this measure as for the fund balance trend, described above.

Management
The legal structure of a local government and management under which it operates influence the government’s ability to maintain a balanced budget, fund services, and continue to derive resources from the local economy. There are two measures in this category.

Institutional Framework: This factor measures the municipality’s legal ability to match revenues with expenditures ba sed on its constitutionally and legislatively conferred powers and responsibilities. For example, a local government with many mandated responsibilities, but with little ability to raise revenues would score poorly on this measure. Our examination of the City’s prior Moody’s bond ratings suggest that the City, for this measure, was rated consistently with is overall rating: Aa. In other words, the second best possible score. We found no high probability risk that the City ’s legal powers and responsibilities would change dramatically in the coming years, so we assume the City’s score on this measure will remain constant throughout the analysis period.

Operating History: Operating history is essentially the extent to which the City runs annual surpluses or deficits. The City’s current measure is well above what is required for Mood y’s highest score. However, because surpluses and deficits are determined annually , we shouldn’t assume stability in this measure over a long-term period. We looked at the last 15 years of the City’s history to see the size of surpluses (there were no deficits) and used those to simulate what surpluses will be in the future. This results in a more conservative assumption than simply continuing the most recent trends indefinitely into the future.

Debt / Pensions
Debt and pension burdens are measures of the financial leverage of a community. The more leveraged a tax base is, the more difficult it is to service existing debt and to afford additional debt, and the greater the likelihood there will be difficulties funding debt service. There are four measures in this category.

We gave this category the most analytical attention for a number of reasons. First, debt was the primary focus of the City in commissioning this study. The amount of debt the City is considering issuing will have a direct impact on some of the measures in this category. Second, as we will see, the City’s current performance on debt indicators is already weak compared to the other indicators we have reviewed.

Third, this section includes pensions, which, as we will see, are the weak spot in the City’s performance on the Moody’s scorecard.

We will first briefly overview the four measures in this category and then go into details on the assumptions made for future values of these indicators.

Debt to Full Value: This evaluates net direct debt relative to full value of the property in the City’s tax base. This metric tells us how onerous future debt service payments could be to the tax base. Currently, the City is in the second best category for scoring on this measure.

Debt to Revenues: This compares debt to the City’s regular revenue stream. Moody’s does not subtract from the calculation any debt whose principal and interest is paid by taxes, even if those costs are external to the General Fund. Under this definition, the City gets a score on the Moody’s scorecard equivalent to an “A” rating.

Three-year Average of Moody’s -Adjusted Net Pension Liability to Full Value. This measure s the magnitude of a local government’s pension obligations relative to its tax base. 6 Similar to the debt burden
evaluation, the tax base serves as a proxy for future revenue -generating capacity to amortize accrued pension obligations. The City’s score here is equivalent to a “Baa” bond rating.

Three-year Average of Moody’s-Adjusted Net Pension Liability to Operating Revenues. This metric seeks to measure pension obligations relative to the size of the local government’s budget. The metric attempts to reflect that amortization of accrued net pension obligations could divert revenues out of future budgets and lead to funding shortfalls. The City’s score here is equivalent to a “Ba” bond rating (the second worst rating).

6 Note that Moody’s adjusts the standard net pension liability measure found in government financial reports to include less favorable as sumptions on the discount rate for pension investments. The details behind these calculations are available in the Risk Model supplied to the City by GFOA.

Assumptions for Future Indebtedness:
• The Risk Model includes all repayment schedules for the City’s existing debt and assumes debt will be repaid in the times and amounts currently scheduled. • The Risk Model includes three categories of “new” debt. The detailed assumptions behin d the new debt are described in more detail later, but the general categories of new debt are:
o Debt that the voters have previously authorized, but which the City has not issued. This is in the amount of $117 million in principal.
o Debt issued to support Vision 2050 or other programs. The user defines the amount of principal in the Risk Model. The Risk Model assumes that the number entered by the user will be approved by the voters.
o Debt issued in the far future. Given we are taking a long-term (30 years) perspective, we should not assume that future City Councils will not issue any more debt. The amounts and timings of these simulate future debt issues are described as part of the following bullets.
• For all new debt, the user can choose the length of the repayment schedule. For the purposes of this report, we assumed 30 years. This is consistent with the City’s past practices and current plans. We assume level repayment schedules (i.e., no front or back loading of re payment schedules). We assume no debt refunding, refinancing, etc. • For all new debt, we simulate the interest rate, where historical rates are used as a model. Here are some key points:
o We use forecasts of the yield on ten-year US Treasuries for the next two years to simulate the interest rate environment for the next two years. We do this so that the Risk Model does not generate short-term results that are divergent from short-term expectations. o After two years, the Risk Model randomly generates future interest rates, where the rate of change in the rat es is entirely consistent with the rate of change in the interest rates for Aaa-rated GO bonds and US Treasuries since 1977. We used the historical rate of change to simulate downward, upward, and stable trajectories for long -term interest rates.
o The Risk Model assumes bond interest rates will not go below zero . The user has the option to adjust this rate floor.
o The Risk Model includes the City’s informal policy that the City will not borrow if rates are above 5%. If rates are simulated to go above 5% in any year any simulated, then borrowing is deferred until rates go back below 5%.
o For the purpose of this report , the Risk Model assumes that rates are just as likely to go up in the future as they are to go down, with the exception of the first two years. As discussed above, the next first years are determined by the 10-year US Treasury forecasts produced by other organizations. For the years after that, the user is able to adjust how likely rates are to go up or down to explore assumptions other than what we assumed for this report. So, if the user wanted the Risk Model to simulate an interest environment where it is twice as likely rates would go up, then that assumption could be entered. In no case will the rates rise at a greater rate of change than has been observed historically.

• The Risk Model assumes that the City will issue new debt that has been previously authorized by voters, but which have not yet been issued. This amounts to $117 million in additional principal that is added to the City’s debt burden over the next five years. The debt is issued according to a user-defined schedule.
• For the debt to support more borrowing, including the City of Berkeley Vision 2050 , in the Risk Model, the user can choose the amount of debt the City will issue. The Risk Model allows the user to choose between the options below. The options are completely user definable so the City can add, change, or delete options as it likes:
o An option for $300 million in debt, which represents the lower end of what the City Council has discussed. Note that the City Council has discussed supplementing this amount of debt with a parcel tax. The parcel tax would not impact the City government’s performance on the key indicators in the Moody’s scorecard other than requiring the City issue less debt. Hence, the parcel tax is not included in the Risk Model. o An option for $600 million in debt, which represents the upper end of what the City Council has discussed.
o An option for $900 million in debt. This is included just for demonstration purposes, so the user can see what a larger amount of debt would do to the model results. • Debt issued to support more borrowing f or the 2050 Vision Plan are assumed to be issued in increments evenly throughout the 30-year analysis period. The user can change this assumption and make the debt issued on any schedule they would like. • We should not assume that the debt issued to support the City of Berkeley Vision 2050 will be the last debt the City issues for 30 years. Since 2000, the City has tried to gain voters’ approval to issue new debt in seven of ten election years. Thus, we must assume that future City Councils will have plans to issue debt to support future projects. The model simulates this under the following assumptions:
o The City will not try to issue new debt again until 2028. This assumption can be easily changed by the user.
o For any election year after 2028, there is a 70% chance that the City will try to gain approval to issue new debt. This is based on the fact the City has historically tried in 70% of election years, though this assumption can be adjusted by users. o The amount of debt the City attempts to issue in any given election year varies between $13 million and $150 million. This is based on the inflation adjusted amounts the City has tried to issue in the past. The Risk Model adjusts this amount upwards in future years to account for the effects of inflation.
o The public approves proposed new issues at the same rate it has in the past, including partial approvals.

Assumptions for Future Pension Liabilities
For pension liabilities, we developed a single alternative pension assumption, based on the work of the City’s CPA firm. This assumption assumes a negative 1 percentage point adjustment to the discount rate applied to pension investments. So, if the baseline, status quo assumption is 7.15%, then the alternative would be 6.15%. The user can activate or deactivate the alternative assumption on the Risk Model

dashboard. If activated, the alternative assumption is applied across all of the thousands of scenarios the risk model produces. If is not activated, it is not applied to any of the scenarios.

The Risk Model also includes an assumption for annual increase in pension liability and the current annual rate of 3.96% . GFOA would like to acknowledge the assistance of Dan Matusiewicz, Senior Finance Consultant, at GovInvest for providing assistance on formulating this assumption, which is based on a

6.8% discount rate and wage growth of 2.5%.

Section 4 – Results of the Analysis and Recommendations In this section, we will address the finding from our analysis, including recommendations to help the City retain its credit rating.

Let’s Put Debt in Context of the Financial Indicators Used to Estimate Debt Affordability The City’s level of debt only impacts the financial indicators that comprise a total of 10% of the Moody’s scorecard. Put another way, 90% of the scorecard result is determined by factors other than the City’s debt! That means that long-term affordability of the City’s debt will be influenced by things like how the City manages its tax base, fund balance, its pensions, and its budget. Exhibit 3 .1 provided details on the relative importance of the different factors in the Moody’s scorecard. To recap some of the more notable items:
• Pensions are equal to 10% of the scorecard result, or the same as debt. • Fund balance and cash are equal to 30% or are three times the importance of debt. • A balanced budget is equal to 10% of the scorecard result. • Economic factors, like full value and median family income, are equal to 30% of the scorecard result.

According to our re-creation of the Moody’s scoring method, today, the City is just short of a score that would be consistent with an Aaa rating. The City’s pension liabilities are the main culprit for keeping the City from that score. This conclusion seems consistent with what bond analysts have conveyed to the City:
that the City would have an Aaa rating if not for its pension situation. This means that the City has some “distance to fall” in order to get down to an A rating, at least according to the quantified scoring system and the assumptions we described in this report.

All this means that the City’s decision to issue debt must be done in the context of the other factors that impact affordability when trying to determine the chance that additional debt will reduce the City’s bond rating.

So, to review, the City’ strengths are:
• The City’s economic base is firmly in Aaa territory and there does not seem to be a plausible risk of it falling out of that tier. The economic base accounts for almost 1/3 of the rating. • The City’s fund balance and cash are firmly in Aaa territory as well. Even though these measures are, by nature, more volatile than the measures of the economic base there seems to be low risk that they would fall completely out of Aaa territory much less all the way down to an A -rating territory (assuming the City maintains a strong reserve policy, as further described in our recommendations). Fund balance and cash measures also constitute almost one- third of the rating.
• The City has also consistently maintained a balanced budget.

And, the City’s weaknesses are:

• The City’s pensions are in Baa territory currently. Some observers believe there is a case for a lower discount rate to estimate the City’s pension liability. A lower discount rate would make the liability to go up substantially . The City’s CPA firm produced the ca lculation for a 1 percentage point reduction and we included it in the Risk Model as an option for the user to activate, if they wish. If this scenario came to fruition, pensions would become an even greater drag on the City.

In fact, the Risk Model shows a good chance that pensions reach B territory (the worst rating) well before the end of the 30-year analysis period. Finally, it is worth noting that the Risk Model shows that one of the pension measures in the scorecard (pension liabilities compared to revenues) is at risk of slipping down to a score equivalent to the next lower rating tier (Ba) within in the next five years. As we will discuss more later, a continued downward trajectory on pensions could influence bond ratings analysts to give the City a lower rating.
• Though the City’s current indebtedness is not nearly the problem that pensions are, it is not helping the City’s bond rating either. Currently, debt measures sit between Aa and A territory.

More debt reduces the City’s score on the indicators. We can illustrate with the table below. The table shows the City’s scores under different simulations, starting with the City’s current score and ending with the City’s simulated score at the end of 30 years. The simulation does not produce a single score for the end of 30 years, but rather produces a range of possible scores. For this reason, we show the average, optimistic, and pessimistic outcomes.
7 The table uses assumptions identical to that described earlier in this report and assumes $600 million of new debt in support of the City’s programs, including Vision 2050, plus debt issued by future City Councils, as described earlier. We can see that the score at the end of the 30 years is worse than the City’s current score under all three perspectives in the table (average, optimistic, pessimistic). The good news is that when we consider just debt, at least the scores do remain broadly consistent with an Aa rating. But, what about if we consider more than just debt? Oth er factors do enter into the final bond rating of course.

Exhibit 4.1 – Simulated Results on Moody’s Scorecard under the Assumptions Described Earlier in the Report
Score for Each Rating City's
Current
Score
Average Score
at end of 30
years
Optimistic
Score at end of
30 years
Pessimistic
Score at end of
30 years Rating Min Max
Aaa 0.05 1.5 0.00 0.00 0.00 0.00
Aa 1.5 2.5 1.65 2.14 2.00 2.30
A 2.5 3.5 0.00 0.00 0.00 0.00
Baa 3.5 4.5 0.00 0.00 0.00 0.00
Ba 4.5 5.5 0.00 0.00 0.00 0.00
B or below 5.5 6.5 0.00 0.00 0.00 0.00

7 Optimistic and pessimistic are defined as the points at which 5% of the outcomes produced by the model are above or below the point indicated on the table.

To examine the other considerations that go into a rating, Exhibit 4.2 changes the assumptions in the Risk Model to be less favorable for the City, including: a lower discount rate on pensions (1 percentage point) and performance equivalent to an Aa rating for fund balances, cash balances, and operating history (which would be less favorable than the City’s recent h istory would suggest). We can see that the City’s scores now deteriorate enough that the pessimistic outcome places the City in the “A” rating equivalent scoring tier. What the table does not show is how the scores change for periods less than 30 years. The Risk Model tells us that the risk of a downgrade is present in the near-term future, not just the long-term future. This is because the City is close enough to the next lower tier of scoring for its debt and pension measures that it is plausible that the City will reach these lower tiers in five to ten years. We’ll discuss this more detail in the next section. Over the long -term, the City’s strong property tax base (and growth in that base) can balance out some of the nearer-term challenges (assuming the challenges don’t also get worse).

Exhibit 4.2 – Simulated Results on Moody’s Scorecard under Less Favorable Assumptions Score for Each Rating City's
Current
Score
Average Score
at end of 30
years
Optimistic
Score at end of
30 years
Pessimistic
Score at end of
30 years Rating Min Max
Aaa 0.05 1.5 0.00 0.00 0.00 0.00
Aa 1.5 2.5 1.65 2.39 2.30 0.00
A 2.5 3.5 0.00 0.00 0.00 2.50
Baa 3.5 4.5 0.00 0.00 0.00 0.00
Ba 4.5 5.5 0.00 0.00 0.00 0.00
B or below 5.5 6.5 0.00 0.00 0.00 0.00

The reader will not ice that even on this second table, the scores are certainly not disastrous, by any means:
the average score is still within the Aa equivalent tier. That said, we must remember that t he final bond
rating a municipality receives is not a purely mechanical exercise , where the key financial indicators dictate the bond rating. According to Moody’s: “The scorecard is not a calculator. Its purpose is not to determine the final rating, but rather to provide a standard platform from which to begin viewing and comparing local government credits. It therefore acts as a starting point for a more thorough and individualistic analysis.” Put another way, the rest of the rating is subject to a human element: the rating analyst. In a real- life scenario characterized by unfavorable performance across the indicators that Moody’s looks at we can’t discount the possibility that the analyst might decide to “put a thumb on the scale” and raise the chance of a downgrade. For example, perhaps a significant amount of new debt along with further deterioration in the City’s pension situation dampens the rating analyst’s enthusiasm for the City of Berkeley’s debt even more than the Moody’s scorecard suggests. Finally, it could be possible that rating agencies could change the weightings of the indicators they consider. GFOA has observed that the measures favored by rating agencies and the relative weight placed on them has evolved over time. It seems unlikely that debt and pensions would come to occup y a less important place in rating considerations given that they currently constitute a relatively small consideration compared to fund balance / cash and tax base . Given that pensions and debt are biggest risk to future debt affordability, we’ll examine this risk more in the next subsection.

Finally, the model can address different interest rate environments and property markets. Some observers believe that sustained higher interest rates may result from efforts to combat inflation. This would result in economic stagnation and impact on the housing market. In fact, the Federal Reserve Bank of Dallas recently stated that the property market is showing "signs of a brewing U.S. housing bubble ”. The implication is that bubbles pop, with the types of consequences we sa w in the 2008. To explore these concerns further, we adjusted the model assumptions to give more weight to a rising interest rate environment and to reduce, by half, the chances of growth in the City’s revenue and property values. Note that the baseline assumptions in the Risk Model did not assume uninterrupted growth in property values, but did assume a good chance of a long-term upward trajectory. These new assumptions result in a good chance of long-term stagnation. Under these assumptions, unsurprisingly, the City’s is at significantly greater risk of slipping below an Aa equivalent score. Interestingly, the City’s informal policy of not borrowing at rates above 5% makes a noticeable difference in the high interest rate environment: the City stops borrowing at a certain p oint and pays back existing debt, which helps its score. The take -away is that unfavorable turns in the economic environment will have a noticeable impact on the financial indicators and increase the risk of a ratings downgrade.

Pension, Debt and the Risk Posed to the City’s Bond Rating Though pension and debt do not dominate the Moody’s scorecard and are not the most important consideration in bond ratings, they still can influence bond ratings. For example, especially poor performance or not able deterioration from previous performance might capture the attention of the bond ratings analyst. To illustrate, the table below displays results from one of thousands of simulations the Risk Model produced, using the more unfavorable assumptions described in the previous section. We chose to illustrate using the more unfavorable assumptions because it helps make the point we wish to make more clearly. Also, keep in mind this is just one of the thousands of simulations we developed, so it's not intend ed to show generalizable results (unlike the tables in the last section which summarized results from across the thousands of simulations).

The top set of rows in the table shows the City’s current values for the key financial indicators associated with debt and pension in the Moody’s scorecard. The next set of rows shows the scores the indicators receive under the Moody’s methodology. The scores can range from 1 to 6, where 1 is the best (Aaa equivalent) and 6 is the worst (equivalent to B or below) . The final row is the average of all indicators in the Moody’s scorecard, which includes indicators not shown in the rows above (e.g., tax base, fund balance, etc.). Remember that the average is weighted towards the indicators Moody’s deems most important (see Exhibit 3.1).

We see that the City’s current score across all indicators is a 1.65 (bottom left corner), consistent with a strong Aa rating. However, as we move to right and further into the future, we see City’s score on debt and pensions deteriorate (the numbers on the 1 through 6 scale get higher). We can also see the average score move upwards. The movement upwards is not as dramatic because debt and pensions only account for 20% of the total score. The measures that account for the other 80% perform well, often in Aaa territory. Nevertheless, we see that although the City’s score remains consistent with an Aa rating, it has become consistent with a weak Aa (or Aa3 in Moody’s terminology). It should be noted that the cutoff

points used in the table to diff erentiate strong from weak come directly from Moody’s documentation.8 With this in mind, it becomes more understandable why an analyst might decide to downgrade the City to an A rating, if they observe the City’s scorecard result fall from a strong to a w eak Aa. They might conclude that the possibility of continued decline, for example, merits a lower rating.

Exhibit 4.3 – Example Results from a Simulation the Risk Model Produced

Finally, the Risk Model can be used to explore different weightings on financial indicators. For instance, we could give greater weight to pensions and debt and less to cash and fund balances (perhaps because cash and fund balance measures are very similar, so weighting both heavily in the analysis could be seen as “double counting”). This feature of the Risk Model could be used to mimic how a ratings analyst might decide to weigh the indicators differently than Moody’s standard documentation suggests.

Unsurprisingly, weighting debt and pensions more puts downward pressure on the City’s scores.

Develop and Maintain Strong Financial Policies
Financial policies can help the City maintain its good bond rating. A n example is the City’s General Fund Reserve Policy. GFOA’s review of the City’s policy finds that it includes all the critical features of a good policy and calls for a reserve equal to Moody’s Aaa equivalent threshold. That said, it is important to recall that Moody’s looks across all “operating funds”, which includes more than the General Fund. Hence, there could be an argument for defining reserve policies for other critical operating funds.

The City also has a debt policy. The policy has many of the features of a good policy, but there may be some opportunities for improvement. Particularly salient to our discussion o f bond ratings is debt affordability. The City’s debt policy notes that “t he City is subject to debt capacity limit for its general obligation bonds: 15% of assessed value.” This amount of debt would be equivalent to the second lowest rating, Ba, under Moo dy’s scoring. Hence, there may be a case for defining a more locally appropriate debt affordability policy. For example, even under the most aggressive assumptions of how much debt the City might issue, the Risk Model did not show that there was a high chance that debt issued in support of the Vison 2050 would bring the City’s scorecard result below an “A” equivalent score on the measure

8 Note that Moody’s doesn’t use the terms “strong” and “weak”, but rather a numeric code. We elected to use the more descriptive terms of “strong” and “weak” in order to make the table more understandable.

Now 3 4 5 6 7 8 9 10 11 12

VALUES FOR INDICATORS
Net Direct Debt / Full Value 1.3% 2.2% 2.3% 2.2% 3.0% 2.9% 2.7% 3.5% 3.8% 3.8% 3.8% Net Direct Debt / Operating revenues (x) 0.76 1.29 1.34 1.86 1.78 1.69 2.08 2.28 2.20 2.10 2.01 Adjusted Net Pension Liability (3-Year Average) to Full Value (%) 8.7% 13.7% 13.7% 13.8% 14.0% 14.1% 14.7% 15.2% 16.4% 17.7% 18.8% Adjusted Net Pension Liability (3-Year Average) to Revenues (x) 5.24 7.73 8.26 8.49 8.72 8.90 8.80 9.17 9.44 9.67 9.93 SCORE FOR DEBT & PENSION INDICATORS (1 THRU 6 SCALE)
Net Direct Debt / Full Value 2 3 3 3 3 3 3 3 3 3 3
Net Direct Debt / Operating revenues (x) 3 3 3 3 3 3 3 3 3 3 3 Adjusted Net Pension Liability (3-Year Average) to Full Value (%) 4 5 5 5 5 5 5 5 5 5 6 Adjusted Net Pension Liability (3-Year Average) to Revenues (x) 4 5 5 6 6 6 6 6 6 6 6 SCORE FOR TOTAL OF ALL INDICATORS (1 THRU 6 SCALE) 1.65 2.2 2.2 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.3 ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^
Strong Weak Weak Weak Weak Weak Weak Weak Weak Weak Weak Aa Aa Aa Aa Aa Aa Aa Aa Aa Aa Aa
Years into the Future

comparing debt to property value of the tax base. The A rating is defined as debt equal to between 1.75% and 4% of property value. This might be a good starting point for defining a locally affordable limit. The City could “stress test” affordability by simulating larger issues to see how much pressure is placed on the scorecard result by increasing the amount of debt. It could be that the City’s strong tax base and fund balance / cash practices would make it practical to incur debt beyond 4% of property value without putting the score at too much risk, but perhaps 15% is still too much. Of course, we must remind ourselves that bond ratings consider only the interest of the City’s creditors. Just because creditors are willing to lend does not mean the City should borrow. More debt also places more of a burden on taxpayers. Taxpayer burden should be analyzed as part of developing a debt affordability policy. We’ll discuss this more in one of our other recommendations, later in this report.

Another opportunity for improvement of the City’s debt policy might be to define interest rate ceilings for issuing debt. GFOA understands that the City has an informal policy that considers “5%” the interest rate ceiling beyond which the City will not issue debt. Formalizing this policy, or something like it, could help make a positive impression on rating analysts. The GFOA Risk Model can be used to help the City stress test different policy choices because the user can customize the interest rate ceiling the Risk Model uses and adjust assumed behavior of the interest rate environment.

Finally, a structurally balanced budget policy could be he lpful. The City has a good history of running budget surpluses . A municipal government is subject to legislative requirements to pass a balanced budget. However, the definition of a balanced budget is just that inflows equal outflows for the year and says nothing about the long-term sustainability of how the budget is balanced. For example, according to the law, an asset could be sold to pay for the compensation of permanent City staff positions. An asset is a one-time revenue while staff compensation is a recurring expenditure, so this strategy would not be advisable even if it is legal. A structurally balanced budget policy commits a local government to adopting a budget that is balanced using sustainable strategies. GFOA is happy to provide the City with templates for such a policy, if the City is interested in pursuing it. This kind of policy would support both a strong score in the “operating history” and, perhaps, the “institutional framework” measures in the Moody’s system. For example, Moody’s recognizes “unusually strong budget management and planning” as a “notching factor” that could justify a higher score for a municipality than the ratios in the scorecard might suggest. A structurally balanced budget policy could be an illustration strong b udget management and planning.

Manage the Risk Posed by Pensions
As we’ve discussed, pensions are the Achilles’ heel of the City’s bond rating. The City has been considering strategies to manage its pension risk and has established an irrevocable suppleme ntal (Section 115) pension trust. This could help support a good bond rating. This is supported by conversations the City’s Finance Director has had with bond rating agencies: the City’s current pension challenges has kept it from achieving an Aaa rating and continued deterioration in pension position could even lead to the City slipping to an A or a lower rating.

Support a Strong Tax Base
If pensions are the City’s Achilles heel, then its aegis is its tax base. Not only is the tax base directly responsible for 30% of the City’s score on the Moody’s scorecard, it directly impacts other measures as well. For example, the Moody’s scorecard method compares debt and pensions to the full value of taxable property in the City. Of course, the tax base also determines how much revenue the City can raise, which influences fund balances and the City’s ability to balance its budget. Therefore, the City should take active steps to preserve and to enhance its tax base. GFOA has found that there are unrealized opportunities for municipal governments to better reflect the financial interests of municipal government in land use planning. After all, land use planning will have an important influence on how the tax base develops and how the tax base develops will have an important impact on the quality of life in Berkeley (like the City’s ability to invest in infrastructure!). The City can learn more about GFOA’s findings and recommendations for how to make the connection between land use planning and city finances in this report [Note to
reader: as of the date the City of Berkeley’s report was posted the GFOA report on the intersection between land use planning and municipal finances has not be released to the public. It will be available soon].

Develop and Maintain Measures of Tax Burden
General Obligation (GO) debt is paid for by a special tax levy. Therefore , more GO debt does not place a direct pre ssure on the City’s budget. It does, however, place burden on the City’s taxpayers. Voters approve the City’s ability to authorize debt. In that way, voters are speaking as to whether debt is affordable to them or not. However, voters are unlikely to have a perfect understanding of the long-term implications of debt for their tax burden. In the past, the City has developed measures that show the average tax burden for a City of Berkeley homeowner. It may be wise to develop the ongoing capacity to monitor and project tax burden, especially if the City plans to continue making use of GO bonds and tax measures. The scope of the GFOA Risk Model cover s only City government finances, but the Risk Model does provide much of the information that the City would need to examine the tax burden placed on residents and businesses by future debt. For example, it gives the full range of principal and interest that would need to be covered by taxes every year of the 30-year analysis period. It also provides range of the potential size of the tax base.

Be Strategic about Debt Issuance
The City already has $117 million in previously authorized debt that it plans to issue in the next few years.

This is included in the Risk Model and in the information we’ve presented in this re port. What the risk model doesn’t capture is the City staff’s capacity to manage the debt issuance and, critically, to manage

the projects that the debt is intended to finance. Prioritizing projects to make sure the City doesn’t take on more than it can handle will not only make the best use of limited staff capacity it will help limit the total amount of debt the City takes on. The City has old debt that will gradually be paid down in the coming years. There is some opportunity to moderate the increase i n the City’s total debt burden by timing the issuance of new debt with expiration of old debt. That said, we must recognize that the amounts of new debt being contemplated do significantly exceed the amount by which old debt will decrease in the next number of years. So, a total increase in the City’s debt burden would be inevitable under the assumption that there $117 million would be issued along with some significant additional amount to support other projects including the Vision 2050 project.

Section 5 – Conclusion and Summary
In conclusion, the City’s performance on the key financial indicators used in the Moody’s scorecard appears to be robust under a variety of circumstances. That said, the final bond rating the City receives is not purely a function of these indicators. Human judgment, applied by bond ratings analysts, determine the final score. Their judgment could be swayed, negatively, by the risks posed by debt and pensions, which we described earlier in this report. We have outlined a number of opportunities for the City to take proactive measures to preserve and protect its bond rating and, thus, its capacity to borrow at favorable interest rates.

To conclude, let’s recap the key take-aways from this report. • The City has important strengths that bolster its ability to borrow, including a strong tax base, fund balances, and a history of balanced budgets. That said, the City’s current policy identifies a limit on borrowing equal to 15% of assessed value. Borrowing this much would place th e City at the equivalent of a Ba score or the second lowest score for the key financial indicator of debt compared to the value of property in the City. That would, of course, exert strong downward pressure on the City’s bond rating. The City should develop a more locally appropriate debt limit, rather than relying on statutory limits (which are set without regard to local context). For example, debt equal to 4% of property value would still provide room for the City to issue more debt (the City is currently at less than 2%), while keeping that measure with the scoring tier equivalent to an A rating. The GFOA Risk Model can be used to “stress test” different policies. • An unfavorable turn in the economic environment could impact the City’s bond rating. The R isk Model can be used to simulate high interest rate environments and stagnant (or even declining) housing markets. Unsurprisingly, these conditions increase the chances that the key financial indicators we analyzed will slip into territory associated with a lower bond rating. This is important because some observers believe that a higher interest rate environment and stagnant or declining property market are real possibilities.
• Growth in the City’s tax base supports borrowing and repayment of debt. Hence, the City should consider how it can use the City’s land use planning capabilities to support the financial capacity of City government. Land use planning could be used to improve the revenue productivity of the land uses in the City’s jurisdiction.
• The City’s pension liabilities are a drag on the City and its capacity to borrow. Pensions are clearly the weak spot in the City’s bond rating given how the pensions stand today . Some observers believe that the current discount rates assumed for the pensions’ in vestments may be too optimistic. Lower discount rates would increase the size of the liability even further. This emphasizes the need for the City to find ways to manage its pension debt. • The City can adopt certain financial policies to maintain good management practices. This will help make a positive impression on bond rating analysts. It is important to remember that even though our Risk Models shows the City is likely to perform consistently with an Aa rating in most scenarios: A) in many scenarios the City’s position deteriorates from strong Aa to a weak Aa; and B) ratings are ultimately the product of the judgment of the bond ratings analyst. An analyst’s

enthusiasm for the City’s debt might dampened enough by this deterioration that the analyst decides on a ratings downgrade for the City.
• Though our analysis focused on the direct impact of debt on the finances of City government, the City should also be mindful of the burden on taxpayers. The Risk Model provides much of the information the City would need to estimate burdens on taxpayers under different scenarios. • The City already has $117 million in previously authorized debt that it plans it issue in the next few years. Given the City’s interest i n issuing more debt to support the Vision 2050 and other programs, the City should remain mindful of the City staff’s capacity to manage new debt issuance and, critically, to manage the projects that the debt is intended to finance. Prioritizing projects to make sure the City doesn’t take on more than it can handle will not only make the best use of limited staff capacity, it will help limit the total amount of debt the City takes on. • By following a prudent borrowing strategy, managing pensions, and following other recommendations in this report the City shou ld have a good chance of making a positive impression on bond ratings analysts and maintaining its ratings, all while preserving some additional capacity for the City to borrow.

Appendix 1 – Limitations of GFOA’s Analysis
This section highlights the most important limitations of our analysis.

Our analysis is not predictive. GFOA does not forecast bond ratings . Rather, our model generates hundreds or even thousands of different scenarios to show how the future could unfold. This helps the City think more broadly about risk so that it can be more prepared for whatever future event does eventually come to pass. Finally, it is important to note that low probability events are still possible events.

Hence, even if our model says an event has a low probability, then that does not mean it won’t occur.

GFOA is not a risk management consultant. We worked with the City to find out which risks to bond ratings are most salient and then model ed those risks quantitatively to judge the potential impact. It is not our place to determine what the City’s attitude towards risk should be or to substitute GFOA’s attitude towards risk for the City’s. GFOA builds models to help you explore the questions, but ultimately you have to make the decisions.

Our analysis is based on historical records. Historical data is often a good way to model potential future outcomes. However, historical data will not be perfect.

Our analysis is not inclusive of every risk the City could possibly face. We examined the City’s past history and worked with City staff to identify the risks that posed the most clear and present danger to the City’s bond rating. However, it is possible that the City could experience a shock that no one was expecting or that the City could be impacted by a low probability, but high consequence event.

The calculation of the key indicators is subject to some interpretation. Though Moody’s does produce detailed documentation of their methods, there is still some interpretation required. For example, th e measure of fund balance is supposed to include all “operating funds”. It is ultimately up to the analyst to decide which funds are operating funds and which aren’t. It could be that GFOA would have a different interpretation than Moody’s. That said, given that our Risk Model did duplicate the City’s current score, our interpretation should at least be close.

Good decisions do not always lead to good outcomes . Excel simulation tools can enhances one’s perception and understanding of uncertainty and risk.
9 However, when dealing with uncertainty, even the
best decision may not lead to a good outcome, if luck goes against you.10

9 “To survive in an increasingly unpredictable world, we need to train our brains to embrace uncertainty,” Emre Soyer, Quartz Magazine, January 9, 2017 https://qz.com/879162/to-survive-in-an-increasingly-unpredictable-world- we-need-to-train-our-brains-to-embrace-uncertainty/.
10 This is one of the primary lessons in: Annie Duke. Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts. Portfolio. 2019.

Kate Harrison
Councilmember District 4
2180 Milvia Street, Berkeley, CA 94704 ● Tel: (510) 981-7140 ● TDD: (510) 981-6903 ● Fax: (510) 981-6903 E-Mail:

[email protected]
1 ACTION CALENDAR
June 25, 2024
To: Honorable Mayor and Members of the City Council
From: Councilmember Harrison
Subject: Adopt an Ordinance Adding a New Chapter 12.01 to the Berkeley Municipal Code Establishing Emergency Greenhouse Gas Limits, Process for Updated Climate Action Plan, Monitoring, Evaluation, Reporting and Regional Collaboration

RECOMMENDATION

1. Adopt an ordinance adding a new Chapter 12.01 to the Berkeley Municipal Code (BMC) establishing Emergency Greenhouse Gas Limits with an effective date of [ ], 2022.

2. Refer to the FY23-24 Budget Process $[ ] consistent with implementing the requirements of Sections 12.01.040, 12.01.050, 12.01.060.

POLICY COMMITTEE RECOMMENDATION
No final action was taken by the Facilities, Infrastructure, Transportation, Environment & Sustainability Committee. Item is automatically returning to the Council agenda pursuant to the time limit for items referred to policy committees.

CURRENT SITUATION, EFFECTS, AND RATIONALE FOR RECOMMENDATION Scientific evidence indicates that between the industrial period of 1850 and 2021, economic systems, namely state and free-market forms of capital accumulation and economic growth have increased global atmospheric carbon dioxide levels to a staggering 418 parts per million (ppm), beyond the established planetary boundary of 350 ppm, and warmed global average temperature by approximately 1.1 degrees Celsius. Available scientific evidence indicates there is no ‘safe’ level of warming beyond 350 ppm, only gradations of risk with respect to habitability.

Berkeley is already experiencing unprecedented negative effects of warming associated with 1 degree of warming, and current global growth trends and policies could push humanity past 1.5 degrees by mid-century, leading to a devastating 2-4 degrees by the

Adopt an Ordinance Adding a New Chapter 12.01 to the Berkeley Municipal Code Establishing Emergency Greenhouse Gas Limits, Process for Updated Climate Action Plan, Monitoring, Evaluation, Reporting and Regional Collaboration

ACTION CALENDAR
June 25, 2024
2 end of the century. The ‘Global North,’ which includes Berkeley, has far exceeded its fair share of the emissions comprising and exceeding the boundary, and must reduce its emissions rapidly and justly.

The City of Berkeley has engaged with the issue of global warming for at least three decades and has unquestionably been a leader in certain climate actions. Yet, in light of the current gravity of the climate emergency, current strategies and targets are not adequate. Exceptionally risky “mitigation” strategies, namely midcentury ‘net-zero’ pledges have provided for unbridled economic and emissions growth and thus severely dwindled carbon budgets, effectively rendering Berkeley’s gradual reduction goals: 80% by 2050 (Measure G, 2005 and Resolution 64,480-N.S., 2009) and net-zero by 2045 (Resolution 69,852–N.S., 2021), untenable. The majority of risk associated with each additional ton of greenhouse gas emitted will be borne by generations who will have not consented to current reduction goals and strategies. Current policies could exacerbate or lead to exceedingly dangerous new tipping points.

This item is timely in light of ongoing reports that national “pledges” under Paris Agreement could lead to at least 3 degrees of catastrophic warming, the inability for Congress to pass meaningful domestic and international climate policies and legislation, and the failure of world leaders to reach an effective and substantive agreement at the 26th UN Climate Change Conference of the Parties (COP26) in Glasgow.

BACKGROUND
The ordinance establishes emergency greenhouse gas limits aimed at reducing sector- based greenhouse gas emissions 90% below 2000 levels and consumption-based emissions 90% below 2013 levels by 2030. These limits would bring Berkeley closer to its global ‘fair share’ and science-based reduction obligations, and could help achieve reductions at scale as part of a program of regional coordination and collaboration.

While such targets are ambitious, mitigating and minimizing global warming risk and maximizing adaptation, resilience and adherence to planetary boundaries earlier in the century rather than later will likely result in less disruption to society over the long term, and will generate opportunities for more inclusive and sound democratic decision making as compared to waiting until atmospheric carbon levels reach increasingly catastrophic levels.

These limits are consistent with the City’s 2006 “precautionary principle” established by BMC 12.29, and which states:
“The purpose of this chapter is to promote the health, safety, and general welfare of the community by minimizing health risks, improving air quality, protecting the quality of ground and surface water, minimizing consumption of resources, and minimizing the City’ s contribution to global climate change by implementing in a phased manner, as provided in this chapter, the City’s use of a precautionary principle approach in its decisions.”

Adopt an Ordinance Adding a New Chapter 12.01 to the Berkeley Municipal Code Establishing Emergency Greenhouse Gas Limits, Process for Updated Climate Action Plan, Monitoring, Evaluation, Reporting and Regional Collaboration

ACTION CALENDAR
June 25, 2024
3 As enacted by Council, BMC 12.29 requires the City to apply the following precautionary principle tenets in the course of action and decision-making:

1. Anticipatory Action: Anticipatory action may prevent harm. Government, business, community groups, and the public share this responsibility.

2. Right to Know: The community has a right to know complete and accurate information on potential health and environmental impacts associated with the selection of products, services, operations or plans.

3. Alternatives Assessment: Examine a full range of alternatives and select the alternative with the least potential impact on health and the environment including the alternative of doing nothing.

4. Consideration of Significant Costs: Consider significant short-term and long- term costs in comparing product alternatives, when feasible. This includes evaluation of significant costs expected during the lifetime of a product, (e.g. raw materials, manufacturing and production, transportation, use, clean-up, acquisition, extended warranties, operation, supplies, maintenance, disposal costs, long and short-term environmental and health impacts); and that expected lifetime compared to other alternatives.

5. Participatory Decision Process: Decisions applying the Precautionary Principle should be transparent, participatory by including community input, and informed by the best available information.

The ordinance requires the City to develop a new Climate Action Plan and consistent with these GHG limits and precautionary principle tenets, and to establish relevant legislative and budgetary timelines to help the City reach its objectives.

In addition, the ordinance requires the City to consider post-growth climate mitigation strategies and policies as potential alternatives to the growth and market-based and other policies that created the crisis and remain a persistent obstacle to meaningful action. The City’s policies and programs must not aim to merely increase economic growth for growth’s sake, but rather to support the provision of basic human needs and happiness.

It also provides an institutional framework to build solidarity with neighboring Bay Area communities and jurisdictions to achieve collective limits that could change rate of global warming while simultaneously providing sister cities in other countries precious time to improve living standards and pursue decarbonization.

ENVIRONMENTAL SUSTAINABILITY
This item is consistent with the latest climate science and the precautionary principle established by BMC 12.29.

Adopt an Ordinance Adding a New Chapter 12.01 to the Berkeley Municipal Code Establishing Emergency Greenhouse Gas Limits, Process for Updated Climate Action Plan, Monitoring, Evaluation, Reporting and Regional Collaboration

ACTION CALENDAR
June 25, 2024
4 ATTACHMENTS

1. Proposed Ordinance adding a new Chapter 12.01.

FINANCIAL IMPLICATIONS
Staff time will be necessary to implement the new ordinance. This item refers $[ ] to the FY23-24 Budget Process consistent with implementing the requirements of Sections

12.01.040, 12.01.050, 12.01.060.

CONTACT PERSON
Councilmember Kate Harrison, Council District 4, (510) 981-7140

1 ORDINANCE NO. –N.S.

ADDING CHAPTER 12.01 TO THE BERKELEY MUNICIPAL CODE TO ESTABLISH

EMERGENCY GREENHOUSE GAS EMISSIONS LIMITS
BE IT ORDAINED by the Council of the City of Berkeley as follows:

Section 1. That Chapter 12.01 of the Berkeley Municipal Code is added to read as follows:

Chapter 12.01

EMERGENCY GREENHOUSE GAS EMISSIONS LIMITS
Sections:

12.01.010 Findings and purpose.

12.01.020 Definitions.

12.01.030 Greenhouse Gas Emissions Limits.

12.01.040 Climate Action Plan.

12.01.050 Monitoring, Evaluation, And Reporting.

12.01.060 Regional Collaboration.

12.01.070 Severability.

12.01.080 Construction.

12.01.090 Effective date.

2 12.01.010 Findings and purpose.

The Council of the City of Berkeley finds and declares as follows:

A. Available scientific evidence indicates that between the industrial period of 1850 and 2021 economic systems, namely state and free-market forms of capital accumulation and economic growth, have increased global atmospheric carbon dioxide levels to a staggering 418 parts per million (ppm) beyond the established planetary boundary of 350 ppm, and warmed global average temperature by approximately 1.1 degrees Celsius. The ‘Global North,’ which includes Berkeley, has far exceeded its fair share the emissions comprising and exceeding the boundary, and must reduce its emissions rapidly and equitably.

B. Available scientific evidence indicates there is no ‘safe’ level of warming beyond 350 ppm, only gradations of risk with respect to habitability. Berkeley, California, the United States, and the world is already experiencing unprecedented negative effects of warming associated with 1 degree of warming, and current global growth trends and policies will push humanity past 1.5 degrees as early as the 2030s and 3 to 4 degrees by the end of the century. Global warming between 1.5 to 2 degrees Celsius is expected to further accelerate existential risks to health and safety including but not limited to, extreme weather, mass extinction, water and food shortages, violent conflict, fire, forced migration, economic collapse, disease, heat stress, and sea level rise. The majority of risk associated with each additional ton of greenhouse gas emitted will be borne by generations who will have not consented to current reduction strategies.

C. In the twenty-first century, Berkeley, California, and the United States have largely and irresponsibly relied on ineffective market-based mechanisms, unrealistic expectations of absolutely decoupling GDP growth from energy use, speculative mass deployment of negative emission reduction technologies and ‘net-zero’ practices to offset continued fossil fuel production and consumption, and underappreciation of irreversible tipping points, aerosol masking, and non-carbon greenhouse gasses. In light of the current gravity of the climate emergency, these strategies have unequivocally failed; between Measure G and 2018, each jurisdiction only reduced greenhouse gasses by a respective 10%, 12%, and 26%, while at the same time globally, nearly a third of all anthropogenic carbon dioxide was emitted.

Exceptionally risky strategies pursued by the Global North, namely midcentury ‘net- zero’ pledges have provided for unbridled economic and emissions growth and thus severely dwindled carbon budgets, effectively rendering Berkeley’s gradual reduction goals: 80% by 2050 (Measure G, 2005 and Resolution 64,480-N.S., 2009) and net- zero by 2045 (Resolution 69,852–N.S., 2021), untenable.

D. It is the intent of the Council to adopt stringent and equitable science-based greenhouse gas emissions limits and related action plans and reports, consistent with the precautionary principle approach established by Chapter 12.29, for the purpose of achieving the rapid, far-reaching, unprecedented and just changes in all aspects of society associated with mitigating and minimizing global warming risk and maximizing adaptation, resilience and adherence to planetary boundaries.

E. The Council further intends to endeavor to build solidarity with neighboring communities and jurisdictions to achieve collective limits that could change rate of global warming while simultaneously providing sister cities in other countries precious time to improve living standards and pursue decarbonization.

3 12.01.020 Definitions.

A. "Climate Action Plan" means the document required under Section 12.01 outlining the specific actions the City will endeavor to take to reduce Greenhouse gas emissions and to mitigation, resilience and adaptation efforts with respect to climate impacts.

B. “Consumption-Based Greenhouse Gas Emissions” means all the Greenhouse Gas emissions associated with producing, transporting, using, and disposing of products and services consumed by a particular community or entity in a given time period, including emissions generated outside the boundaries of the community or the geographic area where the entity is located.

C. “Greenhouse Gas” means any and all of the following gases: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride.

D. “Sector-Based Greenhouse Gas Emissions” means all of the Greenhouse Gas emissions generated within the geographic boundaries of the City in a given time period.

E. “Responsible Production and Consumption” means improving how materials and products are extracted, manufactured, delivered, acquired, used, reused, recycled, and disposed of to ensure that the production and consumption of materials and products promote basic human needs, are distributed in a socially equitable manner, and carried out in a way that minimizes environmental impacts over the lifecycle of those materials and products while matching the carrying capacity of the earth’s resources and adding value so as not to jeopardize present and future generations. “Lifecycle” means the complete material life of a product, good, or service, including resource extraction, manufacture, assembly, construction, maintenance, transportation, operations or use, and end of life (reuse, recycling/composting, and disposal). “Carrying capacity” means the number or amount of people, plants, and other living organisms that an ecosystem can support indefinitely without causing environmental degradation.

F. “Post-Growth Emissions Mitigation” means Greenhouse Gas mitigation strategies and policies that acknowledge and support the following:
(1) rapid emissions reductions may not be compatible with economic policies that support limitless growth, especially growth in the production and consumption of commodities that do not support basic human needs,
(2) in jurisdictions with high aggregate wealth there may be a disassociation between additional capital accumulation, economic growth, and GDP, and key social outcomes, to include but not limited to, health, social wellbeing, happiness and equity, (3) fairer distribution of income and wealth, and guaranteed access to universal public services.

12.01.030 Emergency Greenhouse Gas Emissions Limits.

A. The following Greenhouse Gas emissions limits are hereby established:
(1) By 2030, reduce Sector-Based Greenhouse Gas Emissions [90%] below 2000 levels. (2) By 2030, reduce Consumption-Based Greenhouse Gas Emissions to [5] mtCO2e per household or less, equivalent to a [90%] reduction compared to 2013 levels. (3) By 2026, the Council shall determine an appropriate deadline for achieving 100% zero emissions across both Sector and Consumption-Based inventories.

12.01.040 Climate Action Plan.

A. By [ ], 2022, the City Manager or designee shall prepare and submit for relevant Council policy committee and Council approval a Climate Action Plan (CAP) which shall

4 do all of the following:
(1) Align with the emissions limits established in Section 12.01.030. (2) Consider equitable Post-growth Climate Mitigation strategies and policies. (3) Incorporate an equity framework that addresses historic racial, class-based, and social inequalities; prioritizes social, economic, and environmental benefits derived from implementing the CAP; and ensures an equitable distribution of those benefits. This framework shall consider:
(a) The engagement and prioritization of those who are most impacted by climate change and have historically had the least influence in decision-making processes, including low-income communities of color, communities with disabilities, and other impacted populations;
(b) Burdens and/or unintended consequences of related actions, especially for low-income communities of color, communities with disabilities, and other vulnerable populations; and
(c) Social interventions needed to secure workers' rights and livelihoods when economies are shifting to responsible production and consumption, collectively referred to as a “just transition” framework, and other impacts on workforce and job opportunities. (4) Include, but not be limited to, the following elements: energy supply; transportation and land use; building operations; housing; Responsible Production and Consumption; carbon sequestration and water conservation.
(5) Identify strategies and/or make recommendations to achieve emissions limits for all elements. The CAP shall recommend approaches on goals and principles. Each strategy or recommendation shall:
(a) Identify parties responsible for implementation;
(b) Incorporate an estimated cost; and
(c) Incorporate estimated legislative and budgetary timelines based consistent with Section 12.01.030; and
(d) Contain key performance indicators and explicit equity metrics to measure progress.

B. The City Manager or their designee shall update the Climate Action Plan at least every two years.

12.01.050 Monitoring, Evaluation, And Reporting.

A. The City shall demonstrate its long-term commitment to reducing Greenhouse Gas emissions and advancing racial and social equity by measuring and reporting emissions, tracking key performance indicators and equity metrics, and monitoring the City’s progress on meeting its climate action goals and commitments.

B. The City Manager or their designee shall, with the assistance from relevant City agencies:
(1) Measure and monitor Sector-Based Greenhouse Gas Emissions, including municipal emissions, using best available global protocols for preparing Citywide Greenhouse Gas emission inventories.
(2) Measure production and consumption emissions using best available global methodologies for preparing consumption-based emission inventories. (3) Evaluate Sector-Based Greenhouse Gas Emissions against set limits, document production and consumption emissions, and produce an annual Greenhouse Gas emissions report.
(4) Establish a monitoring and reporting process for the implementation of the CAP that:
(a) Tracks key performance indicators and equity metrics for strategies to help

5 monitor their progress and implementation;
(5) Request and receive data from City departments to support:
(a) The annual Greenhouse Gas emissions inventory. City departments may be asked to provide data on, but not limited to, the following: their energy use; types of fuels used for their operations; fuel volume; vehicle-miles travelled (if applicable) within their jurisdictions; and private sector Greenhouse Gas emission sources regulated by the department. Departments may also be requested to verify emission estimates and assumptions and review resulting reports;
(b) Monitoring and reporting of Climate Action Plan implementation. City departments may be asked to provide data on key performance indicators and equity metrics related to adopted strategies and actions; and
(6) Coordinate with other City agencies to monitor, track, and report on climate action progress to local, state, national, and global partners. (7) Report its findings in a progress report to the Council and public every year. (8) Report on at least a biannual basis to relevant Council policy committees and commissions to support policy and budget development consistent with reduction limits established in Section 12.01.030.

12.01.060 Regional Collaboration.

The Council and City staff, working alongside the public, shall endeavor to build solidarity and coalitions with neighboring communities, jurisdictions, and agencies to achieve equitable collective Greenhouse Gas limits and observe planetary boundaries.

11.63.070 Severability.

If any word, phrase, sentence, part, section, subsection, or other portion of this Chapter, or any application thereof to any person or circumstance is declared void, unconstitutional, or invalid for any reason, then such word, phrase, sentence, part, section, subsection, or other portion, or the prescribed application thereof, shall be severable, and the remaining provisions of this Chapter, and all applications thereof, not having been declared void, unconstitutional or invalid, shall remain in full force and effect. The City Council hereby declares that it would have passed this title, and each section, subsection, sentence, clause and phrase thereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases had been declared invalid or unconstitutional.

12.01.080 Construction.

This Chapter is intended to be a proper exercise of the City’s police power, to operate only upon its own officers, agents, employees and facilities and other persons acting within its boundaries, and not to regulate inter-city or interstate commerce. It shall be construed in accordance with that intent.

12.01.090 Effective date.

The provisions in this ordinance are effective [ ], 2022.

Section 2. Copies of this Ordinance shall be posted for two days prior to adoption in the display case located near the walkway in front of the Maudelle Shirek Building, 2134 Martin Luther King Jr. Way. Within 15 days of adoption, copies of this Ordinance shall be